How Does Going Into Overdraft Affect Your Credit Score and Mortgage Approval?

Using an overdraft is a common feature of many UK bank accounts. For some people, it acts as a short-term buffer to manage cash flow. For others, it can become a regular part of day-to-day finances. When it comes to applying for a mortgage, however, many borrowers ask how overdraft use might affect their chances.

Understanding the relationship between overdraft and mortgage approval requires looking at how overdrafts appear on credit reports and how mortgage lenders typically interpret them. This guide explains how overdrafts work, how they can influence your credit score, and how lenders may view overdraft usage during a mortgage application.

The information below is provided for general guidance only.

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What Is an Overdraft?

An overdraft is a borrowing facility linked to a current account. It allows you to spend more money than you have available in your account, up to an agreed limit.

There are two main types of overdraft:

• Arranged overdraft – an agreed limit set by the bank
• Unarranged overdraft – borrowing beyond any agreed limit

Arranged overdrafts are usually reported differently from unarranged overdrafts on a credit report.

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How Overdrafts Appear on Your Credit Report

Overdrafts are recorded on your credit report as a form of revolving credit. Your report may show:

• The overdraft limit
• The balance used
• Payment history
• Whether the account is within or outside agreed terms

If an overdraft is used within the agreed limit and managed well, it does not automatically harm your credit score. However, exceeding the limit or remaining overdrawn for long periods can have a negative impact.

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Does Going Into Overdraft Lower Your Credit Score?

Going into an overdraft does not automatically lower your credit score. The impact depends on how the overdraft is used.

Arranged Overdraft Use

Using an arranged overdraft occasionally and staying within the agreed limit is usually seen as neutral, provided it is managed responsibly.

Persistent Overdraft Use

Regularly using most or all of your overdraft limit can indicate financial pressure. Credit reference agencies may view this as higher risk, which can affect your credit score.

Unarranged Overdrafts

Going into an unarranged overdraft or exceeding your agreed limit can have a more significant negative effect. These events may be recorded as missed payments or account breaches.

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Overdraft Usage and Credit Utilisation

Credit utilisation refers to how much of your available credit you are using. Overdrafts contribute to this calculation.

For example:

• £1,000 overdraft limit
• £900 consistently used

This high utilisation can be viewed similarly to maxing out a credit card, potentially affecting how lenders view risk.

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How Mortgage Lenders View Overdraft Usage

Mortgage lenders look beyond the credit score and review the full credit report and bank statements.

They may assess:

• How often the overdraft is used
• Whether usage is occasional or persistent
• Whether the overdraft is repaid regularly
• Whether limits are exceeded
• Patterns shown in recent bank statements

An occasional overdraft used briefly is often viewed differently from a consistently overdrawn account.

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Bank Statements and Overdrafts

As part of a mortgage application, lenders typically request recent bank statements, often covering the last three to six months.

From these statements, lenders may identify:

• Regular reliance on overdraft
• Timing of income versus expenditure
• Whether overdraft use is reducing or increasing
• Signs of unplanned spending or financial stress

Even if an overdraft appears manageable on a credit report, bank statements can provide additional context.

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Does Overdraft Use Affect Mortgage Approval?

In general terms, overdraft use does not automatically prevent mortgage approval, but it can influence how an application is assessed.

Lenders may be more cautious where they see:

• Continuous overdraft usage
• Increasing overdraft balances
• Overdraft reliance immediately before application
• Unarranged overdraft fees

Where overdraft use appears short-term and controlled, it is often less concerning.

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Overdrafts and Affordability Assessments

Overdraft usage can also affect affordability calculations.

Lenders consider:

• Net monthly income
• Regular outgoings
• Existing credit commitments

If overdraft use suggests that monthly income is insufficient to cover regular expenses, lenders may question whether mortgage repayments are sustainable.

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Arranged vs Unarranged Overdrafts for Mortgages

Mortgage lenders generally view arranged overdrafts more favourably than unarranged overdrafts.

• Arranged overdrafts – viewed as agreed credit, provided limits are respected
• Unarranged overdrafts – often seen as a warning sign of poor financial management

Repeated unarranged overdraft usage can significantly reduce lender options.

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How Recent Overdraft Use Matters

As with other credit behaviour, recency matters.

• Historic overdraft use may carry less weight
• Recent overdraft reliance, especially close to application, may be viewed more critically

Lenders often focus on the most recent three to six months of financial behaviour.

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Overdrafts vs Other Types of Credit

Overdrafts are assessed differently from loans or credit cards.

• Overdrafts are flexible and revolving
• They do not have fixed repayment schedules
• Persistent use can be harder for lenders to assess

Because of this, overdraft behaviour is often scrutinised closely during underwriting.

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Common Misunderstandings About Overdrafts and Mortgages

“Any Overdraft Use Is Bad”

Occasional use within an agreed limit is common and not automatically negative.

“Clearing the Overdraft Once Fixes the Issue”

Lenders look at patterns over time, not just the current balance.

“Credit Score Is the Only Thing That Matters”

Bank statements and affordability assessments are equally important.

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Steps People Often Consider Before Applying

People concerned about overdraft use often consider:

• Reducing reliance on overdraft gradually
• Keeping accounts within agreed limits
• Allowing time for improved account conduct to show
• Reviewing bank statements before applying
• Understanding how affordability is assessed

These are general considerations and do not guarantee a particular outcome.

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Overdrafts for First Time Buyers

First time buyers often rely on overdrafts while saving for a deposit. Lenders understand this can happen, but consistent overdraft reliance may still affect affordability assessments.

Demonstrating improving account conduct can be helpful in these cases.

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Buy-to-Let Mortgages and Overdrafts

Buy-to-let lenders focus primarily on rental income, but personal credit history and bank statements are still reviewed. Persistent overdraft use can still influence lender decisions.

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How Long Does Overdraft Behaviour Affect a Mortgage Application?

Overdraft usage patterns shown on recent bank statements usually have the greatest influence. Credit report entries can remain visible for up to six years, but lenders generally place more weight on recent behaviour.

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Summary

Going into overdraft does not automatically damage your credit score or prevent mortgage approval. However, overdraft and mortgage approval are closely linked through patterns of usage, affordability, and recent financial behaviour.

Lenders look at how overdrafts are used, not just whether they exist. Occasional, controlled use is typically viewed differently from persistent reliance or unarranged overdrafts.

Understanding how overdraft behaviour is assessed can help borrowers approach a mortgage application with clearer expectations.

This article provides general information only. For personalised guidance, regulated mortgage advice is required.