Does Overdrawn Affect Credit Score?

How Does Overdrawing Affect Credit Score?

Overdrawing in a bank account means that you have used your account to withdraw more money than you have in your account. This usually leads to your bank charging you an overdraft fee for the amount that you have spent. However, does overdrawing also affect your credit adversely? Okay, let’s look at some of the details.

What Is Overdrafting?

Overdrafting occurs when a person performs a transaction or a purchase but does not have enough money in the checking account it is linked to. In other words, you are borrowing money that you cannot afford to pay back.

In such cases, your bank may let the transaction happen against its better judgment in the interest of the other party. This is referred to as an overdraft. However, you will probably be charged an overdraft fee for this ‘privilege. ’ The overdraft fees usually cost between $30 and $35 per overdraft.

Overdraft Protection

There are a few overdraft assurance programs in a few banks, which can prevent you from paying expenses once you go over your account adjustment. Overdraft assurance implies that a certain sum of cash is exchanged from a connected investment funds account or credit line to pay for the overdraft. This makes a difference in dodge circumstances where the exchange is declined or returned unpaid.

Nevertheless, you can be charged interest or fees by using the overdraft protection funds However on the off chance that you do not have sufficient reserves within the qualified connected accounts to completely pay for the overdraft, you stand to be charged expenses.

The Effect on Your Credit Rating

It's important to understand that your credit score is unaffected by a simple overdraft or bank account overdraft. The reason for this is that over-drafting reports are not received by the three major credit bureaus, Equifax, TransUnion, and Experian. Credit reports only list some kinds of loans and credit accounts, such as credit cards, mortgages, student loans, and vehicle loans. An overdraft does not appear on your credit record when you take one out because it is not considered a loan or credit.

On the other hand, things could develop worse and could have a variety of negative effects on your credit if you do not quickly get your account back to a positive balance.

1. The bank has closed your account: However, the bank may decide to freeze an account if it is in the negative for a long time. This account closure may also be reported to ChexSystems, a consumer reporting firm that provides several financial institutions with information about closing checking and savings accounts. Other banks may refuse your request to create new accounts in the future if ChexSystems records an involuntary account closure owing to overdrafts.
2. The bank deducts your negative amount: If closing an account results in a negative balance that is never paid off, the bank may charge off the outstanding amount and sell it to collection agencies. Your credit scores may suffer significantly as a result of it when it appears on your credit record.

How to Protect Your Credit Score from Overdrafts?

This is why one must avoid letting their credit standing get affected by overdraft problems by solving them as early as possible. Here are some tips:

• Carefully monitor your account balance: Banks and mobile applications available today make it very easy and convenient to check the balance between spending and what is available. Review it frequently.
• Sign up for balance alerts: Most banks allow you to create personal alarms that notify you when your balance is below a certain amount that you choose, say $100. Staying aware is critical.
• Reduce overdraft risk: You can opt out of overdraft protection altogether or you can have specific transactions denied rather than going through and incurring a fee. Also, realize that declined transactions such as credit card payments also incur fees such as late payment fees.
• Fast fund depositing: If you do overdraw, ensure that you make a deposit to cover the negative balance before the end of the business day. Funds transfers from linked accounts can also be used to easily clear overdrawn statuses in a short period.
• Discuss options with your bank: If cannot quickly deposit funds, then inform the bank as soon as possible. Hospitals may be lenient to an extent and agree to wipe off the balances or offer to come to a payment arrangement. Resolution is key.

The Bottom Line

The actual act of overdrawing does not reflect on your credit reports or contribute to the reduction of your credit scores, but letting the issue get out of control does. It can ultimately result in account closure or collections activity down the road – and those will impact your credit if not addressed promptly! The best ways to prevent credit harm are to close account oversight and prompt credit replenishment after an accidental overdraft.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!