Does an overdraft affect my credit score?

do overdrafts affect credit

You can rest easy knowing that an account in overdraft does not directly affect your credit score. However, there are ways in which overdrafts on checking accounts can indirectly affect credit. Continue reading to learn more about overdraft and your credit.

What Is An Overdraft Exactly?

An overdraft is usually offered by financial institutions such as banks and credit unions, which allows account holders to draw more money than they have, resulting in a negative balance until money is transferred into the account to balance it out. There are two main kinds of overdrafts:

  • A Standard Overdraft — A standard overdraft occurs when a bank approves a transaction that exceeds the available balance in an account. The bank covers the difference, but typically charges an overdraft fee.
  • An Extended Overdraft — An extended overdraft happens when your account remains in a negative balance for several consecutive days. 

Data from The Financial Health Network shows that 16% of households with checking accounts reported having overdrafted at least once in 2020.1

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 major 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
  • 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 loans, credit cards, installment loans, cash advance loans, quick 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 three major 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 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:

Credit Score CategoryWeight (%)
Payment History35
Amounts You Owe30
Length of Credit History15
New Credit10
Mix and Variety10

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 Impact 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. 

Overdraft Fees

If you are regularly overdrawing your checking account and having no funds, the overdraft fees can become quite costly. This could indirectly affect your credit reports by making you late on your credit card or loan payments. Additionally, a negative account balance can lead to a collections account.

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. 

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. 

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. 

Utilize Mobile Banking

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.

FAQS: Does Overdraft Affect Credit Score 

Is there a limit to how many overdraft fees a bank can charge in a day related to my bank account?

While this varies by bank and the type of bank account you have, many institutions do have a daily limit on the number of overdraft fees they can charge a customer. If you’re considering opening a new bank account, it’s essential to check with your specific bank for their policy on overdraft fees.

Do all banks offer overdraft protection for their savings account and other accounts?

Not all banks offer overdraft protection for savings accounts or other types of accounts. Those that do might have different terms and conditions, especially concerning credit scores. So, it’s crucial to read the fine print and understand the costs associated with overdraft protection.

How long do I have to cover a negative balance in my bank account before additional overdraft fees are charged?

The time frame can vary, but many banks give customers a grace period of one business day to cover the negative balance before charging extended overdraft fees. It’s essential to be aware of this to maintain a good credit score and avoid negative reports to a consumer reporting agency.

Are there alternatives to traditional overdraft protection that might affect my credit utilization?

Yes, some banks offer alternatives like linking a savings account or credit card to your checking account. If you overdraw your checking account, funds from the linked account are used to cover the transaction, which can impact your credit utilization ratio.

Can I opt-out of overdraft protection after opting in if I open a new checking account?

Yes, most banks allow customers to change their overdraft preferences. If you initially opted in for overdraft protection and later decide it’s not right for you, especially after opening a new account, you can typically opt-out through your bank’s customer service.

How do banks determine the order of transactions and its impact on overdrafts and credit scores?

The order in which transactions are processed can affect the number of overdrafts and potentially your credit scores. Some banks process larger transactions first, while others might process them in the order they’re received. It’s essential to understand your bank’s policy to avoid unexpected overdrafts and any negative reports to the credit bureau.

Are there any non-profit organizations or resources to help manage and understand overdrafts, credit scores, and credit utilization better?

Yes, many non-profit organizations offer financial counseling and resources to help individuals better understand and manage their finances, including avoiding overdrafts, improving credit 
scores, and understanding credit utilization.

The Bottom Line With CreditNinja

An overdraft does not directly impact credit, but it can indirectly—this is because it can really hurt other aspects of your finances. If you do face an overdraft once in a while, it shouldn’t be too concerning as long as you have funds to add to your account. However, constant overdrafts can be a sign of financial insecurity or bad spending habits. At CreditNinja, we encourage you to learn as much as you can about bank accounts and other aspects of your finances, so you can make the best decisions for you! 


  1. Amid Resurgence of Interest in Overdraft, New Data Reveal How Inequitable It Can Be | Fin Health Network
  2. Does an Overdraft Impact Your Credit Score? | Experian
  3. Does an Overdraft Affect Your Credit Score? | Fortunly
  4. How Overdraft Affects Your Credit Score |
  5. What’s In Your Credit Report? | myFICO 

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