How overdrafts affect your credit score

Do overdrafts hurt your credit score? Understand the impact, what banks report to lenders, and how to manage your account responsibly with this useful guide.

Written by Hayley Bevan and Victoria Smith

Published: 03/10/25Published on October 3rd, 2025

Last reviewed: 17/11/25Last reviewed on November 17th, 2025

6 mins read

Overdrafts are a common feature of current accounts that offer a short-term safety net for regular and unexpected expenses. They allow you to withdraw money from your account, even if you have insufficient funds.

But as convenient as it might be to have access to additional funds, an overdraft can appear as a debt on your credit report which could impact your credit score.

In this guide, we’ll break down how overdraft applications are recorded, the differences between authorised and unauthorised overdrafts, and explain how an overdraft may affect your credit health.

What is an overdraft?

An overdraft is a type of credit that offers short-term borrowing linked to your current account. It gives you the flexibility to pay for bills and other expenses, even when you have insufficient funds.

For example, if you have a balance of £100 but need to pay a utility bill of £250, an overdraft can help you make the payment, leaving a negative balance of £150.

A current account will typically have an authorised or unauthorised overdraft. An authorised overdraft is pre-approved by your bank, whereas an unauthorised overdraft is one your bank may allow – even if you haven’t applied for it.

In both instances, it’s important to note an overdraft is a type of credit facility and shouldn’t be regarded as free money. So if you do have access to credit from your current account, use it sensibly.

What’s the difference between an authorised and unauthorised overdraft?

An authorised overdraft is one you’ve applied for and had approval for from your bank. It offers a financial cushion up to an agreed amount that’s available whenever you experience a temporary shortfall in funds. Should you exceed the agreed limit, you might be subject to interest and other types of bank charges.

An unauthorised overdraft, however, is one your bank may let you use – even if you haven’t applied for it. It often comes with higher fees and interest rates that can also apply to those who’ve exceeded the agreed limit in an authorised overdraft. By using an unauthorised overdraft, you’re also at higher risk of impacting your credit score.

In both instances – authorised or unauthorised – your bank may report an overdraft to credit reference agencies to determine how responsible you are with credit. If you’re seen to be reliant on an overdraft or have a habit of exceeding an agreed limit, it may leave a mark on your credit history.

For that reason, you should always act responsibly when it comes to using credit, be it with an overdraft, credit card, or any other type of loan. Always avoid spending beyond your means and make it a priority to pay back what you owe on time, every time.

Do overdrafts affect your credit score?

An overdraft appears as a form of borrowing on your credit report. When a lender reviews your report, they’ll consider your limit and how much of the overdraft you’re using.

Provided your overdraft is authorised and used responsibly, it’s unlikely to have a negative impact on your credit score. In fact, it could help to improve your credit rating if it’s rarely used.

Alternatively, if you have an unauthorised overdraft or go over the agreed limit on an authorised overdraft, it could suggest to lenders that you’re struggling financially and deemed a higher risk for lending.

Authorised overdraft: Neutral if used responsibly but can show as ongoing debt

Unauthorised overdraft: Negative and may indicate financial difficulty

Frequent overdraft use: Risk of higher utilisation, may lower score

Never used/minimal use: Neutral to positive and shows strong money management

Lenders will also look at other forms of unsecured borrowing when making a lending decision. So, by rarely using your overdraft or having a low credit utilisation, you could be in a stronger financial position to secure future loans, such as a mortgage or finance for a family car.

For that reason, always manage your overdraft sensibly by treating it as any other form of debt. That starts by spending within your means and paying off what you borrow as soon as financially possible.

Does applying for an overdraft affect your credit score?

Applying for an arranged overdraft usually involves a credit check which rarely affects your credit score. However, if a lender wants to dive deeper into your application, they may request a hard search which could temporarily lower your score.

You could also experience a dip in your credit score if multiple overdraft applications are made within a short period of time. Not only does it suggest financial strain to lenders, but it can also lead to significant amounts of borrowing that you’re unable to repay.

To avoid an overdraft affecting your score, you should be selective with your application and avoid approaching multiple banks. You can also protect your score by managing your account responsibly and demonstrating consistent financial control.

Does going into overdraft affect your credit score?

Provided it’s authorised and repayments are made promptly, going into your overdraft is unlikely to affect your credit score. If it’s used sensibly and you stay comfortably within the agreed limit, you might even see an improvement in your score.

However, an overdraft can affect your score if you’re not careful. Should you borrow more than authorised or regularly have a high credit utilisation, it might suggest to lenders you’re struggling to manage your finances, which could impact your credit health.

Similarly, if you’re using an unauthorised overdraft, you’re at risk of damaging your creditworthiness which can make it more challenging to secure future loans. You could also be subject to higher interest rates, as well as paying other types of bank fees.

To protect your score, you should maintain a healthy credit utilisation ratio, make payments on time, and only use your overdraft when it’s absolutely necessary.

Risks of going into overdraft on your credit score

As with any type of credit, there is always a risk of negatively impacting your credit score if your account isn’t managed responsibly.

With an overdraft, typical behaviours causing a drop in credit scores include high utilisation, missed payments, or going over your agreed credit limit. All of which signal financial difficulty to lenders.

You’re also likely to harm your credit score if you use an unarranged overdraft where you’re borrowing money without a plan or permission from your bank.

By staying in control of your overdraft, it’s more likely you’ll be seen as responsible with credit and have more options with future lending – potentially with better rates, offers, and promotions.

If you need access to credit and want to potentially improve your score, a credit-building credit card is another alternative to overdrafts that could be a preferred fit for your financial situation.

An overdraft is a form of credit that can impact your credit score, depending on whether it’s authorised, unauthorised, or used persistently with high credit utilisation. As with any type of borrowing, it should be used responsibly and shouldn’t be regarded as free money.

If you need access to credit and want to improve and protect your score, a credit builder credit card might be a preferred option. With an Aqua credit card, you’ll also have access to a range of tools and automatic payment reminders to help you stay in control of your finances.

Representative 39.9% APR (variable) on Aqua Classic

Contributors

Hayley Bevan

Hayley is an editor at Aqua.

Victoria Smith

Victoria is an editor at Aqua.