3 min Read
24 Apr 2014

Written by Damien

Damien is one of the most widely quoted money and investment experts in the national press and has made numerous radio & TV appearances. He created MoneytotheMasses.com while working in the City when he became disillusioned with the way the public were left to fend for themselves because they could not afford financial advice.

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Reader Q: Will unused overdrafts affect my chance of getting a mortgage?

Readerwill unused overdrafts affect my credit rating question:

I am currently trying to save ahead of moving house later this year. I was very interested in your article “How to earn 6.5% interest on your cash in a year” – particularly aspects such as earning the £100 welcome gift from Halifax for switching account.

I have a very good credit rating and I would like to know if any of the steps are likely to adversely affect this rating?

If were to proceed with all of the steps would the overdraft facilities on each account affect my credit rating?

My current account is with HSBC and I may very well apply for my mortgage with them. Will opening a second current account with them simply to switch it to Halifax affect my standing with them or affect their decision on my mortgage application?

Many thanks

My response:

The first thing to point out is that there is no such thing as a universal credit rating - see my article on 10 credit rating myths (& the true facts). In reality what happens is that any potential mortgage lender will look at your credit report and will make an assessment (or scoring) against their idea of the type of person they'd want to lend to.

Generally overdrafts aren't bad for credit scoring unless they are breached and you creep into an unauthorised overdraft. However, some lenders may deem that an unused overdraft facility is evidence of your financial stability. But, on the other hand a lender could decide to reduce the amount they'd lend to a potential borrower because of the extra access they have to potential credit lines, such as an overdraft. In reality I can't confirm either way what HSBC's stance would be.

Ultimately, given that you plan to apply for a mortgage soon, you'd be better off applying for and securing the mortgage first without taking any chances, particularly given that new mortgage rules coming into force this April mean a third of potential borrowers won’t be accepted. Once you have your mortgage you will be free to do as you wish without the worry of the impact on an impending mortgage application.

I hope that helps

Damien

Money to the Masses

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