What Happens to Your Credit Score If You Overdraft

Man writing a check
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With a checking account, you're generally allowed to only spend the money you have in your account. When a transaction causes your bank balance to go negative, it's referred to as an overdraft.

You probably know your bank will charge an overdraft fee for the courtesy of paying your transactions for you. You might even have to pay a fee for each day your account remains negative. But what do overdrafts mean for your credit?

How Overdrafts Affect Your Credit Score

Your checking account information isn't regularly reported to the credit bureaus - because you're spending your own money, not money you've borrowed. Fortunately, bank overdrafts won’t affect your credit score if you resolve them within a timely manner. Once you pay off the overdraft amount and bring your account to at least a zero balance, you can continue using your checking account as normal.

However, if you ignore the bank’s attempts to get your account out of a negative balance, your outstanding balance may be sent to a collection agency. Once that happens, the debt will go listed on your credit report. At that point, the collection that stems from your overdraft will affect your your score. A collection account will remain on your credit report for seven years, even after you’ve paid it, unless you convince the collection agency to remove it.

Paying Your Credit Card With a Check

Your credit score could also be hurt if the check you wrote to cover your credit card payment is returned for non-sufficient funds.

This happens when there is not enough money in your checking account to cover the payment and your bank does not pay the check anyway

In this instance, your credit card company will charge you a returned check fee. If you don't make up the payment within 30 days, your account will be reported as delinquent to the credit bureau and your credit score will be affected.

Note that this doesn't happen simply because you had a credit returned, but because a check written to cover your credit card payment was returned.

If the checks continue to be returned, your credit card account will continue being reported delinquent and your credit score will take more damage. When you use a check to pay your credit card, make sure you have enough money in your account to cover the check and any other outstanding transactions.

Bank Overdrafts and Your Credit Score

While bank overdrafts may not directly affect your credit score, there may be a correlation between several bank overdrafts and a low credit score. If you frequently overdraft your checking account, it's a sign that you're spending more money than you really have. This could mean you're taking on more debt than you can afford to repay and that you've missed your credit card payments because you lack the money to pay your bills. These are two of the biggest influences on your credit score.

Other Credit Scoring Systems

Your bank may have an internal credit scoring system that uses information in your credit report along with your account history with that bank. If your bank does use this type of credit score, that specific credit score could be affected by your overdraft.

It would only impact your ability to get a credit card or loan with that bank or its subsidiaries. Your FICO score and credit scores developed by credit bureaus and other businesses won't be affected by an overdrafted bank account except when the overdraft ends up on your credit report through a collection account or late payment.

There are also specialty reporting agencies that report on checking accounts closed with an outstanding balance. These include Certegy Check Services, ChexSystems, and Telecheck. Having an account listed with one of these agencies can affect your ability to get a new checking account. However, information from these speciality reporting agencies isn't included in your credit score.