Overdraft on students account damages credit rating?

Question

I have a student account with a bank in UK with a overdraft of 500 pounds. Speaking to one of the clerks, he explained to me that the overdraft bears no cost and I can keep my bank account in the red for up to three years (the amount of time I will be a student for).

I am currently opening a regular account at another bank (it offers a better ISA rate and regular saver) which I shall make my main account (as I will be receiving money regularly from my scholarship and small time teaching jobs) to save up for the future and to be able to pay up my student loans.

Question is: is it ok to max out my overdraft at the previous bank for all the time they allow me to? This is essentially free credit, that I can just stash in the other bank together with the rest and earn interest on.

Will this damage my credit rating (assuming I pay it off as soon as I stop being a student)?

Will the bank I am overdrafting contact me or ask me why I am not making movement on the old account? Can they ask me to cover the overdraft at any point in time while I am still a student?

Answer 1

is it ok to max out my overdraft at the previous bank for all the time they allow me to?

But pay it back immediately and use it sparingly. Maxing it out always isn't a good sign of being a careful spender.

Some banks only report overdraft facilities to the CRAs over a certain size eg £1000. If you ask the bank why yours is missing they should be able to tell you.

Source

This is essentially free credit, that I can just stash in the other bank together with the rest and earn interest on.

This is waste of time and effort. You will earn paltry interest maybe 0.01 or something per month. And it is bad intentions to consider it as free credit. It is a loan which has to be paid back. It isn't your but the bank's and it is for your own good that you use it sparingly.

I can keep my bank account in the red for up to three years

Never ever do that or try atleast not to do so. Many cases exist where people have done so and have built up on debts and gone into a downward spiral.

Will the bank I am overdrafting contact me or ask me why I am not making movement on the old account? Can they ask me to cover the overdraft at any point in time while I am still a student?

If you aren't in arrears they willn't give a hoot. But if you are they might check up on you from time to time. As for asking their money back read their T&Cs. You don't know how much is hidden in the details.