General Informal Overdraft and Credit Score Help

Discussion in 'General Discussion' started by AccordBuzz, Tuesday 15th Jul, 2014.

  1. AccordBuzz Club Member ★ ☆ ☆ ☆ ☆

    Jack
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    Good morning everyone,

    I'm panicking this morning.

    I get paid on the 15th of every month (today), the date which I also have all my direct debits being withdrawn.

    However, the accountant has 'forgot' to sign the sheet that allows the company to release the funds to pay everyone. Great.

    So this has left me with all my direct debits going out, with no funds in the bank, taking me overdrawn £600. So my bank balance reads -£600.

    However, I do not have an overdraft arranged with my bank. So I am 'over' my bank balance. They've obviously allowed the transfers, which is probably for the best, but it has obviously left me over my allowed limit.

    Will being overdrawn in this sense mess my credit score up? (which I have kept brilliant over the past 2.5 years). I've been assured I will be paid today too. The bank said they will not charge me as i have never been over before and have classed it as a 'one off'

    Cheers,
    Jack
     
  2. SpeedyGee Administrator Staff Team

    England Speedy Birmingham
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    I don't think it will affect anything Jack, if you don't have an agreed overdraft for your bank account, usually your bank will simply send you a letter for the penalty that they will charge for you going into your overdraft, also they will state how much it is costing you on a daily basis for being over drawn. In your case they have waved the over draft fee but you must still be being charged interest for being overdrawn I would think.
     
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  3. Chunkylover53 Expert Advisor ★ ★ ★ ★ ★

    It won't affect your credit score, you will however be charged overdraft interest which your employer will be accountable for. There will also be an extra charge as it's an unauthorised overdraft though that may be voided too. Again just get a list of charges and pass it on to your employer. I wouldn't lose any sleep over this bud.
     
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  4. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    You'll find that most banks will grant you a day to get the funds in, but tomorrow all the Direct Debits will actually be returned and your balance will again be £0 - did they say otherwise to you? The way my bank operates (NatWest) they will then take a £6 fee for each returned DirectDebit the following month when interest/fee charges come out, but sounds like you've managed to avoid that by calling them.

    Companies you were meant to pay will find out in the next 2 days that the payment is missed, you have between now and then to sort something out else they may mark your payment as late on your credit report. A single late payment isn't an issue to most people's credit scores (it will drop marginally temporarily, I probably have 3-4 over the past year between various accounts), but it all depends on how many accounts will be marked "late" at once.
     
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  5. ArcticFire-Account Closed Banned Getting Started

    Scotland Graham Scotland
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    You should be fine, the clue is in the name: "Credit Score". You've not arranged any credit with the bank as the overdraft is unauthorised.

    An authorised overdraft does show up in your credit file though along with the following:

    Credit Cards
    Secured Loans & Mortgages
    Unsecured Loans
    HP Agreements
    Mobile Phone Contracts
    Gas and Electricity accounts
    Virgin Media etc

    and probably other stuff
     
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  6. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    The overdraft usage would still show on the credit report even if it doesn't have an overdraft - but only if the balance is still negative on the day of the month that the bank reports your account to the credit agencies. I have numerous accounts with no overdraft that work like this.
     
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  7. ArcticFire-Account Closed Banned Getting Started

    Scotland Graham Scotland
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    I guess in that case it's because you have been provided credit by the bank, albeit temporarily and although you've not officially agreed to the overdraft it's probably in the small print somewhere.

    EDIT: Why don't you setup authorised overdraft facilities with those accounts?
     
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  8. AccordBuzz Club Member ★ ☆ ☆ ☆ ☆

    Jack
    54
    5
    Thanks for your comments guys.

    After talking to the bank they said that they allowed the funds to be withdrawn as this is the first time this has happened and have treated it as a one-off. They also said that no returns had been made thus far for my direct debits (HSBC).

    They went on to say there will be no charge for going over (for the one-off reason), but there will be if it happens again.

    Luckily I was paid an hour ago so I have money in the bank now. My main worry was going negative on my account and it going against my credit score. I was denied a loan a long while ago because I used to do this. I'm looking at getting a mortgage in a year and worrying really, especially with how tight theyre getting now too.
     
  9. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    Well those are 2 business accounts (which I don't want overdrafts on) and a joint account for my fathers estate which has no use for one. Otherwise I'm always of the opinion of having as much available credit as possible is the best for being a credit score, just when it's used - pay it back as soon as possible (I can be bad at that one though :Laughing:).

    By the sounds of it, you're not going to have an issue at all then :Smile: Good to hear! I'm in the same position as you with wanting to get a mortgage next year and trying to be as good to my credit score as possible.
     
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  10. ArcticFire-Account Closed Banned Getting Started

    Scotland Graham Scotland
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    They will look at your credit file but fortunately when it comes to mortgages they will also physically look focus on your current circumstances and ability to pay so it's not just the infuriating automatically check and decision - although they are apparently getting much stricter now with their requirements. So long as your credit file isn't horrendous then you should still get a mortgage but the amount they offer will obviously be dependent on your income and expenditure - a big deposit can sometimes be required. Having a good credit file should open up more attractive interest rates though and unlike savings accounts the difference between a percentage when it comes to a mortgage can make a fair difference to your monthly payments.

    There's also that Government scheme where they technically own a percentage of your house in return for help towards the mortgage. You can then buy them out later on if wanted. My friend in central London has done it because otherwise she'd never be able to afford a place. I think they Government owns 25% of her house.

    Cheltenham and Gloucester were excellent but alas they were taken over by TSB but they surprisingly renewed my fixed deal for four years at a very low rate, so I can't complain really as it brought my monthly payments down by just over 20% although I've countered that with my increased petrol costs of this damn MPS! lol
     
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  11. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    Just to thread jack, I've heard some horror stories about variable rate mortgages, what kind of interest penalty do you get for having a fixed rate? Is it working out to much more for the security of it all?
     
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  12. ArcticFire-Account Closed Banned Getting Started

    Scotland Graham Scotland
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    At the moment i think the variable was about half a percent different from the fixed i was being offered and what with the uncertainty of interest rates i went for a four year fixed.
     
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  13. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    I'm going to have to dig into that more, as I'm happy to pay a little more for the security of knowing my payments aren't going to drastically rise because of our yoyo economy.
     
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  14. Chunkylover53 Expert Advisor ★ ★ ★ ★ ★

    Don't forget mortgage arrangement fees - they can charge up to £2000 and on top of that, chances are that you'll put it on the mortgage so interest will be charged on that 2k ¬¬

    Also check the small print for the variable interest rate you'll get after a fixed deal ends - in many cases, those who's fixed mortgage came to an end in 09/10 had a 0.75 - 2% variable addon so they would just pay 0.5+(0.75 to 2%) for their mortgage. Issue now is due to the 0.5% interest rate, the addon variable percentage is around 3-4% which is fine atm BUT when we reach higher interest rates in the future then homeowners are going to be well and truly done for once their fixed deals end.

    For that reason I would go with a variable rate, I very much doubt we would see another Black Wednesday scenario however you can expect at least quarterly "notice" of a interest rate hike.

    Carney hinted at a increase being pushed back from 2015 to Q4 this year so if that does happen, the mortgage market will shake up nicely.
     
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  15. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    That's really useful information my friend. Mortgage arrangement fees seem to be as low as £600-900 if you shop around. I'm going to have to research the variable vs. fixed interest rate a lot more, a commitment like a mortgage is not something I'll get myself into unprepared. If I went for a house without a garage in not the best neighbourhood I might be able to buy outright, but to be honest I don't see the point in buying a house if it's not really what I want - as beneficial as it would be from a financial perspective.

    Detached, large garden, garage - ideal requirements, I'd deal with 1 reception room and 2 bedrooms if that were the case.
     
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  16. Chunkylover53 Expert Advisor ★ ★ ★ ★ ★

    As mortgage arrangement fees go down, the interest rate goes up. Only way to find a deal is to work out the monthly cost (online comparison sites won't include the arrangement fee in their calculations so be sure to do your own!). In some cases, paying the 2 grand still works out cheaper than the higher interest rate mortgages (parents did this a few yrs back).

    I have a differing viewpoint on when to buy a property though, personally I want to dive in ASAP even if its in a bad neighbourhood. One could wait for the perfect property and whilst doing so they will still be paying rent and accumulating capital - however if that capital accumulation is lower than the rise in house prices then its pointless as mathematically one would never be able to afford the perfect property. Even if there's a crash, one's income could be wiped out so even though the prices fell, they still cannot afford the property. On top of that, rent and property costs are linked so when prices rise, capital accumulation could fall as rent rises.

    On the other hand I would rather buy whatever I can afford in an bad neighbourhood as long as its near/is a built up urban area (loads of those sort of places in Greater London - especially in ethnic areas). This is because I assume its an inevitability that the price of the property will rise - so instead of spending money on rent, the money is going towards a mortgage and whilst that is happening, the property value is rising. So when it comes to selling to move to the perfect property, there will be profit + no money has been "wasted" as you have got your mortgage costs back (unless its an interest only mortgage (another useless product in the long run)).
     
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  17. DeviateDefiant Co-Founder Staff Team

    United Kingdom Leo Northants
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    The mortgage calculator I've been using so far does take into account the initial arrangement fee, can't remember which it was off the top of my head, also could calculate overpayments and what not.

    Oh I couldn't agree more with not chucking money down the drain on rent - I'll be mortgaging soon as I'm physically able to. Everything right now is dependant on whether my credit is good enough to mortgage at all (bare in mind I'm self-employed so having little tangible earnings has always been in my interest), if it is, with 10% down payments I could mortgage several small properties and rent them out - though that's probably a pipe dream at the moment. I'm a lot more likely to mortgage one property with a large deposit than several with minimum amounts. I'm still looking into it all heavily, though I'm probably 6 months from having the funds available to utilise anyway. I just hope to have a plan in my head before that time hits.

    My ideal scenario is a 40 year mortgage on a place that I really want to live in, and no penalty for overpayment/early pay-off. Keep my monthly overheads low, and over pay as much as I can each month (basically a short mortgage without the ties to large monthly payments).

    I've even considering putting myself into a position of full-time employment for a year, using and paying all my cards each month and doing everything to have a good looking recent credit history in order to definitely get approved. I should really see a mortgage advisor and confirm just how good or bad my standpoint is to them at the moment.
     
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  18. Chunkylover53 Expert Advisor ★ ★ ★ ★ ★

    As you're self employed, it is normal practise to talk to an accountant who can be creative with your income which could put you in a much better position than you think.

    I been to a few bank arranged mortgage advisor meetings, until you get to the advanced stages they aren't that useful. All they do is make you fill out a questionnaire (nothing major, just asks for stuff like CCJ's, failed applications etc) then print out the mortgage rates. It's just another opportunity for them to market their product. Mortgage brokers are lot more helpful as they actively earn money if you buy a mortgage through them (really good money, IIRC it was £750 for setting it up and £4 odd a month for the life of the mortgage).

    Best thing is just to watch the market, seeing as you're 6 months away, that's ample time to save all the properties you like and make a note of which have been on the market for more than 3 months so you can table an offer considerably lower than asking. However in 6 months time we may also see a rate increase which could screw everything up.

    Maybe owning a small set of small properties is a while away, buying a house and converting it into maisonettes isn't so maybe that's something to look into?

    Either way, best of luck bud.
     
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  19. ArcticFire-Account Closed Banned Getting Started

    Scotland Graham Scotland
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    With self employed they usually want to see the income you submitted on your tax return so difficult to be creative unless you at willing to make a sacrifice by partying the extra tax. I don't have a drive way which i hate, but it's a trade off i had to make to get the house i, ahem she, wanted lol
     
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  20. Chunkylover53 Expert Advisor ★ ★ ★ ★ ★

    Yes but usually they find one way or another to offset that extra tax... hopefully
     
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