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. If you have $100 in your account, for example, you can spend up to $100. If you try to spend $102 and the bank allows the transaction to go through, it would cause your bank balance to go negative. This is referred to as an overdraft.

Your bank will charge an overdraft fee for the courtesy of paying transactions that exceed your bank balance. You might even have to pay a fee if your account remains negative for five or seven consecutive business days. 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. That's because you're spending your own money, not money you've borrowed. Fortunately, bank overdrafts won’t affect your credit score as long as 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 never take care of the negative overdraft balance, your outstanding balance may be sent to a collection agency for further action. At that point, the debt collector will report the account to the credit bureaus and it will be added to your credit report. The collection that stems from your overdraft will affect your score. A collection account will remain on your credit report for seven years, even after you’ve paid it, unless you negotiate with 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 transaction.

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.

It's a good habit to periodically check to confirm your payments have cleared to verify your payment was successfully processed.

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.

Your payment history and level of debt 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 won't be affected by an overdrafted bank account except when the overdraft ends up on your credit report through a collection account or returned 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 specialty reporting agencies isn't included in your credit score.