An overdraft occurs when you pay for an expense above the remaining funds on your checking account, this usually happens when you write a check for an amount larger than your account. In most cases, the bank will still pay for the entire transaction, but there will be an overdraft fee and sometimes a daily fee while your account remains in the negative.
Most of the time, overdrafts are caused by carelessness so if you make your account positive quickly, bank overdrafts will not affect your credit score. However, if you ignore the notices from the bank and refuse to pay the overdraft fees and get your account positive, the bank will report you to the credit agencies as well as the ChexSystem database to blacklist you. Your debt may also be handed over to a collection agency. Do not let a simple overdraft hurt your FICO score and make it difficult to get checking accounts and credit cards.
Note that a collection account can remain on your credit report for 7 years, even if you pay back in full. That means having bad credit for a long time unless you get a credit repair attorney to remove it, which cost more money. Either way, a low FICO score affects your success when you need to borrow 900 dollars quickly.
Many people try to write a check for credit card payments but do not have sufficient money in their checking accounts. you end up having to pay a returned check fee and reported for a delinquent account. This will lower your FICO score. Make sure you have sufficient funds in your account to avoid overdrafts or bounced checks, especially when paying bills.
Even if you pay your overdraft fees and balance your checking account on time, frequent bank overdrafts may still lead to a poor FICO score. Frequent overdrafts is a good sign that you are spending more money than you should, taxing your credit limit. This may be caused by increasing debt payments or a reduction in your income, both indicating poorer finances.
Many banks also use their own internal credit scoring system based on your account history with them as well as your credit report. For such cases, unpaid overdraft fees will affect your credit and you may not be able to get a new loan or credit card. However, other lenders with no access to your overdraft activities will still give you a monthly installment loan with no hidden fees unless the overdraft appears on your credit report because of a collection account or late payment.