Does a Student Overdraft Affect Your Credit Score?

When you’re in university, you’re always on the lookout for ways to save. Student discounts are your best friend, saving you money each day, but despite the countless hacks you’ve learned for cutting down on expenses, there are times you need to dip into your student overdraft account.

Being the savvy student you are, you’re not only concerned with saving a couple pounds each day, you’re interested in setting yourself up for the future, too. You want to build your credit score, and want to know if using your overdraft will impact it.

In short, yes: student overdraft accounts do affect your credit score. However, that impact can be positive or negative depending on how you use your overdraft account. By the time you finish reading this post, you’ll know how to use your overdraft to your benefit and avoid damaging your credit score.

What is a Student Overdraft Account?

Many of the most popular student current accounts come with an arranged overdraft. Arranged overdrafts allow you to withdraw more money than you currently have in your account, to a certain limit. If you’re still looking for a student current account, you’ll want to choose one with the following essential features:

• An arranged overdraft (rather than an unarranged or unauthorised overdraft)
• A 0% interest fee on overdrafts
• An overdraft limit that works for your budget

Want to learn more about arranged overdrafts vs. unarranged overdrafts? Check out our article, ‘What Happens if I Can’t Pay My Overdraft in the UK?’

How A Student Overdraft Can Affect Your Credit Score

Like we said, how you use your overdraft will dictate how it affects your credit score. This is because an overdraft is like any other line of credit, and how you use it and pay it back determines the impact on your credit score.

It can be beneficial to think of your overdraft like a credit card. Using it thoughtfully can benefit your credit score just like using a credit card wisely would.

However, if you go over your overdraft limit, it can signal to lenders that you’re dependent on credit. This can result in a decrease to your credit score. Additionally, going beyond your overdraft limit can have consequences:

• You could be charged fees: Although most student overdraft accounts don’t charge interest on borrowed money, they will fine you for exceeding your overdraft limit.
• You could be ineligible for other credit products: If you regularly overdraw your account beyond the arranged limit, the damage to your credit score could make it difficult for you to qualify for other credit products like credit cards, loans, or even things like a phone plan.
• Your overdraft privileges could be revoked: Most student accounts will include clauses in their T&Cs stating that if the bank is unhappy with how you’ve used your account, they can change or revoke your privileges.

How to Use a Student Overdraft Account Wisely

Using your overdraft wisely is a brilliant way to establish your credit score while you’re still in university. Doing so can make it easier for you to receive new credit lines like credit cards or personal loans after your studies. To maximise the benefit to your credit score, make sure to do the following:

• Make sure you have an arranged overdraft: Most student accounts automatically come with an arranged overdraft, but it’s wise to verify this. An unarranged overdraft can damage your credit score quickly.
• Only use it when you need to: While you may have access to £1,000 or so through your student account’s arranged overdraft, you shouldn’t use it all. Instead, focus on following a budget and only using your overdraft when it’s necessary. 
• Pay it off promptly: When you do use your overdraft, pay it off as soon as you can. Not only will this show future lenders that you’re responsible, but it will also establish good habits for the future when your overdraft account has an interest rate around 30%, not 0%.
• Never go beyond your arranged overdraft limit: We’ve said it before, but it’s worth reiterating: surpassing your overdraft account’s limit is a surefire way to make lenders wary of you. It can indicate that you’re struggling financially and will hurt your ability to access new lines of credit in the future.

Keep Building Your Credit With Pave

Student overdrafts can affect your credit score, but they’re still an outstanding way to borrow money as a student. Compared to other risky credit products like payday loans, they’re incredibly safe, and with 0% interest on many student overdrafts, they’re an unbelievably cheap way to borrow money.

Using your student overdraft wisely can help you build your credit score, but it’s by no means the only way to build your credit score. Another way to build your credit with no risk is to sign up for Pave.

The Pave app tracks your bills so you never miss them, reports your payments to credit reference agencies so you get all the credit (no pun intended) that you deserve, and gives you personalised recommendations on how you can improve your credit score.

If that sounds good to you, download Pave from the App Store or Google Play today to see it in action.