The ECO is really wanting to know just how much of your income could be classed as discretionary spending (your personal choice) and how much is non-dicretionary.
Mortgage or rental is normally considered non-discretionary, basically because non-payment could result in loss of accomodation.
Credit-cards and normal bank loans are in a way considered to be discretionary. Payment default does not usually result in loss of accomodation and is generally only a civil issue.
You are correct about overdraft. Plenty of people have one, but being in varying levels of OD can be indicative of living beyond ones means.
This is just a very basic explanation. As with most things there are usually many facets.