Barclays recently sent me a letter advising it will be revoking my agreed overdraft, unless I instructed it otherwise, as I have not used it in 12 months. I informed them that I wished to keep it for peace of mind, but was told by a call centre agent that the decision could not be overturned and that an unused overdraft would negatively affect my credit rating. This £300 overdraft limit has been in place since 2008 when I was earning the minimum wage and has never once been used. During that time, my earnings have increased and I have been approved for a mortgage and various loans and credit cards. So is having an unused overdraft really detrimental to my creditworthiness?
ES, Surbiton, Surrey
You wouldn’t think so, and credit reference agency Experian confirmed that it does not include overdrafts in its credit scoring process. The personal finance advice websites I checked only mentioned the risks of maxing out an overdraft. However, Barclays told me that it reviews customers’ arranged overdrafts annually and plans to remove those that have remained unused. Why? Because, while an unused overdraft does not actually affect a credit rating, it can be detrimental to an “affordability check” which, to the uninitiated, sounds pretty much the same thing.
Both a credit rating and an affordability check are used to assess an application for credit. Whereas the credit rating reflects how reliably an individual has managed credit agreements in the past, an affordability check looks at their income and outgoings, as well as potential credit available, to assess whether they can afford repayments. It’s possible, therefore, to have a good credit rating and a poor affordability score. Lenders might take fright at a large overdraft limit, even if it’s unused, in case the customer decides to avail themselves of it and stretch themselves financially. From what you’ve told me, your limit is very small, so unless your personal finances have recently taken a hit, I’m surprised that it should have been removed.
Barclays says you can appeal, provided you demonstrate your financial situation is in good shape. It says: “It’s important to manage an overdraft like any other debt, and we have a duty of care to try to prevent customers’ limits being more than they can afford. “If customers feel they are able to afford their current limit, they will need to provide us with additional information to confirm their income and expenditure, so we can meet our requirements as a responsible lender.”
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