Do overdrafts affect credit

By Matt Mayerle
Modified on May 8, 2023
do overdrafts affect credit

Overdrafting your checking account is not the best feeling in the world, to say the least. It’s particularly frustrating when you are hit with a costly fee because of it. You might be concerned about what possible side effects an overdraft could have on your overall financial life. Asking yourself questions like ‘will an overdraft affect your credit?’ 

You can rest easy knowing that your checking account overdrafts are not directly included in your credit report. However, there are ways in which overdrafts on checking accounts can indirectly affect credit scores. 

It’s best to gain a full scope of understanding of how your credit score is calculated and how an overdraft could impact it to protect yourself from any adverse effects on your finances. 

What Is Included in Your Credit Report?

To better understand how any given financial decision could impact your credit, it is helpful to know what is included on your credit report and how that information is used to calculate your credit score. 

Your credit report comprises four different types of information reported to each of the credit bureaus. All of this information gives credit unions, banks, credit card companies, and other financial institutions the details they need to approve or deny you for financial products and services. 

Personally Identifiable Information

The PII section is not used to determine your credit risk but rather to connect your identity to the information in the report. It includes your full name, your address, your date of birth, your Social Security Number, and your employment information. Most of these details are gleaned from applications you’ve made in the past for a loan or credit card. 

Credit Accounts

Your lender, credit card company, and bank will report every credit account you open with them here. They will include the type of account (auto loan, credit card, fast cash loans, mortgage, etc.), the date you opened the account, the account balance, your credit limit or loan amount, and your payment history. 

Here is where all on-time and late payments alike will be recorded to directly affect your credit rating.

Credit Inquiries

Every time you apply for a loan or a new credit card, you authorize the financial institution to receive a copy of your credit report from one of the credit reporting agencies. This authorization will appear as a hard inquiry in the credit inquiries section of your credit report. 

Public Records and Collections

The final type of information that credit bureaus collect are public records and collections. Bankruptcy filings are pulled from state and county courts and included here. Bankruptcy stays on your credit report for seven to ten years. 

Debt that is far past due is usually sent to a collection agency. Any new accounts opened by a collections agency are reported immediately to the bureaus to be included in your credit file.

How Your Credit Score Is Calculated

It is often thought that your credit score is included in your credit report, but that isn’t the case. Your FICO score is calculated with the data in your credit report after the fact. The data is divided into five categories, each making up a portion of the calculated score. 

The five categories and their division are as follows:

  • 35% for your payment history. 
  • 30% for the amounts you owe.
  • 15% for the lengths of your credit history.
  • 10% for new credit.
  • 10% for mix and variety. 

Do Checking Accounts Appear on Credit Reports?

When it comes to your credit report, the only kinds of accounts reported to credit bureaus are debt, i.e., credit card accounts and loans. A checking account or any other type of bank account that isn’t debt will not appear on credit reports. If your account is not opened to borrow money, it will not directly affect your credit score. 

By extension, any overdrafts made on your checking account will not show up on your file. While this is a relief, it is also essential to keep in mind that just because bank overdrafts don’t directly affect credit scores does not mean it is impossible for them to impact your credit indirectly.

How Could an Overdraft Affect Your Credit?

An overdraft and the inevitable overdraft fees that go along with it can affect your credit score indirectly if you are not careful. If there is chaos in any area of your finances, you will likely see the effects of that in every other aspect, including your credit.

We will go over a few of the ways an overdraft on your checking account could still affect your credit score indirectly so you can protect yourself from any negative impact. 

Using a Check to Make Your Credit Card Payment

If you were to use a check to make credit card payments only to have the payment returned due to insufficient funds, the credit card company would charge you a returned check fee. You must cover the payment within 30 days, or else your account will be reported as delinquent, negatively affecting your credit score. 

Repeat bounced checks will result in further negative information on your report that could stay there for up to seven years. Always double-check your bank accounts before using a check to make payments, particularly credit card payments, to protect your credit score.

Overdraft Fees

If you are regularly overdrafting your checking account, the overdraft fees can become quite costly. The total cost of overdraft fees could be causing strain on your budget, making your typical monthly bills hard to cover. This could indirectly affect your credit reports by making you late on your credit card or loan payments. 

Depending on what your financial institution offers, it might be best to utilize Overdraft protection to spare yourself from another overdraft fee in the future. Banking fees should not compromise your ability to cover monthly expenses.

A Sign Your Finances Need Some Work

Continuously reaching the bottom of your checking account can often signify that there are more significant issues in your finances that could use some work. If you are having problems with recurrent bank overdrafts, you are likely going to see other shortcomings in your finances that directly impact your credit score. 

It’s vital to consider the big picture when it comes to your overall financial health. Set aside an afternoon to analyze your income and compare it to your expenses. Pick apart the credit accounts you have open and how much debt you owe. Look at how much money you keep in your checking account versus your savings account and how substantial your emergency fund is.

Tips To Avoid Overdrafts in the Future

To avoid an overdraft fee and any indirect impact on your credit, we have a few tips that we’d recommend to you. Overdrafts are bound to happen once in a blue moon, but there are ways you can dodge the worst of the consequences. 

Opt-Out of Overdraft Protection

Overdraft protection on your checking account makes it possible for your bank to cover the costs of a purchase when you have insufficient funds. When you opt-in for overdraft protection, the bank covers the expense through an overdraft, and you are charged a fee every time you don’t have enough money in your account. 

If the fees are too much, it might be wise to opt-out of overdraft protection to avoid unnecessary costs. Banks often allow you to choose not to have overdraft protection if you don’t want it. However, no overdraft protection means that your card will be declined if you use your debit card with not enough money on your bank balance. 

Utilize Mobile Banking

The most practical solution for avoiding overdrafts or getting your debit card declined through lack of overdraft protection is to be aware of how much money you have in your account at all times. This might seem tedious work, but with the invention of mobile banking, it’s quite easy if you have a smartphone. 

Most financial institutions have apps that you can download to your phone, which allow you to check how much money you have in your account at a moment’s notice. You can get accurate information about the funds in your account while you are waiting in line at the grocery store to avoid getting declined or incurring a fee.

Keep Your Credit Score at Optimal Health

Taking care of your finances involves keeping your credit score in good shape. Now that you know how overdrafts might impact credit scores, we can recommend other ways you might improve your credit after it has taken a hit. 

Experian Boost is a service that enables individuals to use bills they already pay – like utility bills and rent – to improve their credit scores. With Experian Boost, you could see an immediate rise in your FICO score, which you can build upon with further responsible credit usage. 

Increase the amount of available credit you have to improve your credit utilization ratio. Make sure that you stay up to date with on-time payments on all your current accounts. If you are consistent and patient, you are likely to see positive results in due time.


Does an Overdraft Affect Your Credit Score? – Experian
Does an Overdraft Affect Your Credit Score? | Fortunly
How Overdraft Affects Your Credit Score |
What’s In Your Credit Report? | myFICO 

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