Does an overdraft affect your credit score?

An overdraft happens when you spend more than you have in your bank account and the transaction goes through, resulting in a negative balance. Since you’re using money from your account—and not borrowing money like you would with credit—an overdraft doesn’t appear on your credit report. So it shouldn’t affect your credit scores.

However, there could be negative effects on your credit scores if you don’t resolve the overdraft. And you may not be able to open a new bank account in the future. Learn more about how overdrafts work and when they might affect your credit. 

Key takeaways

  • Overdrafts don’t usually affect your credit scores unless you don’t resolve them quickly and the account goes into collections.
  • Checking accounts aren’t included in your credit reports from the three major credit bureaus, but they could be included in your ChexSystems report.
  • If your bank offers overdraft protection and you opt for it, that could mean linking your checking account to a savings account, credit card or line of credit to cover potential overdrafts. Or your bank may cover the transaction and charge an overdraft fee.
  • Capital One eliminated all overdraft fees for its consumer banking customers, but it still provides overdraft options. If your bank doesn’t offer overdraft protection or you don’t opt into it, a transaction that would result in a negative balance could be declined.

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What is an overdraft and how does it work?

If you spend more than you have in your bank account and your financial institution approves the transaction, that’s considered an overdraft. Overdrafts can happen when you use your debit card, write a check, withdraw money from an ATM or automatically pay a bill, for example.  

Some banks charge overdraft fees, while others have reduced or eliminated them. For example, Capital One doesn’t charge overdraft fees.

What is overdraft protection?

Banks might offer overdraft protection that account holders can opt into. One overdraft protection option may be linking your checking account to a savings account, credit card or other line of credit. That way, funds can be transferred to your checking account to cover any overdrafts. These transfers might still result in a fee, but it’s typically less than an overdraft fee. Another option is the bank could cover any overdrawn transactions, then charge you the overdrawn amount plus an overdraft fee. 

Capital One account holders can opt in for overdraft protection any time and choose their overdraft preference. If customers aren’t enrolled, transactions that would result in a negative balance are declined, and no fees are charged.

How overdrafts could affect your credit

Your credit scores reflect information in your credit reports. Because checking accounts aren’t a type of credit, they don’t appear in your credit reports or affect your credit scores, and neither do overdrafts. 

However, if you don’t resolve your overdraft and the account goes into collections, that could affect your credit scores. That’s because the collection agency may report that information to the major credit bureaus.

What is ChexSystems?

While overdrafts won’t generally show up in credit reports from the major credit bureaus, they could show up in a ChexSystems report. ChexSystems is a consumer reporting agency that collects and reports information about deposit accounts, including checking and savings accounts. 

A ChexSystems report may include activities like:

  • Overdrafts and bounced checks
  • Account openings and closings
  • Account applications
  • Suspected identity theft

Your ChexSystems report won’t usually affect your credit scores. But it could impact your ability to open new checking or savings accounts. That’s because financial institutions may check your ChexSystems report when they’re reviewing your application. So if you’re interested in opening a new account, it’s a good idea to know if you have an overdraft in your ChexSystems report.

Overdrafts and credit FAQ

Here are some of the common questions about overdrafts and credit:

An overdraft has to do with a bank account, not a credit card. But as part of overdraft protection, you may be able to link a credit card to your bank account to cover any transactions that go over your account balance. 

Credit cards typically have a credit limit. If you try to go over it, your card could either be declined or the transaction may go through and result in things like fees and a negative impact to your credit scores.

Opening a checking account doesn’t typically affect your credit scores. That’s because your credit scores reflect information in your credit reports. And the three major credit bureaus don’t include checking account information in credit reports.

Closing a checking account also doesn’t typically affect your credit scores since checking accounts don’t show up in your credit reports. However, if your account has been closed because of an unpaid negative balance, it could go into collections. And an account in collections could be in your credit reports and affect your credit scores.

Overdrafts and credit in a nutshell

An overdraft doesn’t usually affect your credit scores. But if you wait too long to resolve it and the account goes into collections, your credit scores could be affected.

No matter what, it’s always a good idea to monitor your credit. CreditWise from Capital One is one way to do that. You can access your TransUnion® credit report and VantageScore® 3.0 credit score without hurting your credit scores. And it’s free for everyone, whether or not you’re a Capital One cardholder.

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