Announcing the Overdrafts Preview!

I was told and have chats to support it…

When you first open the account they run a soft credit check to see if they can offer you an overdraft.
When you accept it, they will then run a hard check.

For additional increases they will only run a soft and no hard check is needed. - i.e. only a single hard credit check will be performed.

Ah sorry I thought you were saying before that a soft check was performed whenever you increased the slider. That makes sense, and is actually better than I thought - thanks for the info :slight_smile:

I frequently use the overdraft, but pull in money from elsewhere the same day, so don’t get charged anything. It usually due to the interest only being available on a small part of the current account balance, so storing more money elsewhere to get more interest, or more expenditure one month.

I’m an Android user - waiting for the overdrafts to be made available to Android! I historically have a small overdraft which I rarely use, and if I do it’s usually less than £50 (used of the total, which is say between £200 - £500) and is cleared quickly.

I was wondering what form the hard credit checks take - as I’ve been switching and opening and closing accounts like mad over the last year or two. Co-op, Nationwide, B (Yorkshire Bank), Starling. I’ve also changed my mobile provider about 3 times in about a year and opened a new mobile account because my wife and I decided to harmonise things a bit and used an offer to get a lower price if you have an existing number with the company - which then showed up as a separate account! I’ve also switched credit cards a few times.

So when I look at my credit file I have the - ‘You have opened more than X credit accounts within the last 6/12 months, this has had a negative effect on your credit rating’ and ‘you have made more than 3 credit applications in the last 3/6 months’

I have a relatively small mortgage, low debt (less than £1,500), have never missed a payment on anything ever and earn slightly higher than the average wage.

But because of all this switching around my credit rating is only ‘fair’. Does that actually mean anything and will all this switching affect the chances of being accepted for an overdraft by Monzo?

Anyone know how this works?

1 Like

It will possibly affect you I’m afraid, however that will depend on your overall credit score as well (I know credit scores aren’t actually used as-is by lenders, but they use a similar algorithm to determine creditworthiness so if your score is high there’s a good chance Monzo’s own algorithm will also be happy).

1 Like

Lenders don’t use the score you see on your credit file. This is a number the Credit Reference Agency makes up to sell you services which aim to help you (pointlessly) curate your score with them.

Lenders look at things such as your borrowing history, debt to income ratio, debt to credit limit ratio, affordability, ability to pay debt back on time and pay more than minimum amounts, and, I’m afraid, frequency of applications for credit as this can seem to be an indicator of desperation for credit and bad money management.

Lenders then apply their own, secret, scores to these criteria and see if you fit their target market. This is why you’ll see some companies happy to lend to people they see as poor risk, and others not.

Monzo would take an individual decision as to whether they thought you’d attempted to apply for too much credit, and would, in the process add another check to the pile, which in turn might influence other lenders. But no one knows how each lender assesses potential borrowers, so no one, including the Credit Reference Agencies will be able to say if this will prevent/enhance your chance to get credit in the future.

So by all means apply for another limit with Monzo, but keep in the back of your mind how multiple applications can look to certain lenders in the eco system of your credit history file, which the Credit Reference Agencies provide. If you begin to get rejected, stop applying for a while and try to pay down your debt.

Hope that helps?

5 Likes

That’s helpful yes. The thing is, I have very little debt to pay down.

It’s literally just the frequency of me changing accounts - trying different accounts, switching phone provider, etc - that’s potentially going to muck things up then.

2 Likes

Just as a datapoint regarding that 50p per day…

I recently went overdrawn with my main bank account, and didn’t rectify it until they sent me an email a week later saying my new statement had charges on it (fortunately, the statement period was then or I’d have not noticed it for longer). It turned out to be my credit card, paying off in full after an expensive one-off purchase the month before.

I’d actually gone overdrawn by £280 for 4 days and £380 for another 4 days after a second transaction went out. The charge for that 8 day overdraft incursion was 33p one month and 15p the next.

That 8 days of overdraft was less than a single day of the proposed Monzo overdraft charge, which makes me think you’d have to be seriously maxing out the overdraft for it to be better value than other banks.

6 Likes

I think you pretty much sum up why Monzo is so much better.

If you ignore the part about how 8 days of overdraft on a not insubstantial amount was less than a single day of overdraft on Monzo, then sure.

8 Likes

True. That is very strange, do you have planned or unplanned overdraft?

I get charged a huge amount for overdraft with TSB and Lloyds - Monzo works out cheaper for me but I understand other people can get much better rates elsewhere.

There’s an automatic overdraft facility of £500 at about 10%. As far as I know it was a standard feature of the account when I opened it years ago. I don’t think I ever asked for it and have never used it before.

But my point was that a 50p flat rate is probably great for people who want to max out their overdraft, but for occasional accidental overdrafts it’s not.

1 Like

Yeah monzo overdraft is eyewateringly expensive, but they do give you the tools to avoid it.

I suspect if I ever needed it I’d just instantly max it out as it makes no sense to just slightly dip into it.

2 Likes

Yeah this has been pointed out and it’s unfortunate IMHO but I do like the idea of flat fees instead of a percentage

Actually, this is an area where Monzo could really be challenge banking norms. The whole idea of overdraft is somewhat unfair, particularly for accounts that don’t pay any interest.

A truly revolutionary banking system might be to allow a temporary loan in proportion to your normal balance. If your account is normally at over £1000 for 3 weeks of the year, maybe you could be allowed to slip slightly negative for a couple of days when your mortgage is paid or some other big bill happens. People get paid at all sorts of points in the month, so overall it should all balance out.

Obviously, it’s not really to a bank’s advantage to do that, so I doubt we’ll ever see it from any of them, but it’s nice to dream of! (Also, I realise I’m going somewhat off topic, so apologies…)

1 Like

I don’t have an arranged overdraft. I have been in minus twice with Lloyds lately, forgetting to pay on the correct card. Haven’t been charged once. Not sure why, not complaining though. I was in minis for a few days on each occasion.

Interesting. I think that’s probably more an issue with Lloyds having terrible IT more than anything else! :stuck_out_tongue:

Who knows. That card has been removed from my wallet now so should be fine.

1 Like

Maybe you were lucky enough that the transactions merely authorized but not cleared, so by law they can’t charge you until the transaction clears. By the time it cleared you were in plus again so you never actually used the overdraft.

As bad as banking IT systems are, they are usually spot on when it comes to charging people money (sometimes overcharging even, but it’s not like the bank is gonna complain about it :wink: ) so this is the most likely reason for not being charged for that (occasional) overdraft.

Could well be, yes. Just glad I didn’t get hit with silly charges :joy: