Will overdrawing my checking account hurt my credit?

Apr 11, 2014

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Few things are more infuriating to me than bouncing a check. It isn’t just the $37 fee I get hit with that kills me, it’s that I lost track of how much money I had in my account. Overdrafts do not, of and by themselves, hurt your credit score. However, there are two vital things to know beyond the overdraft itself.

The bounce and backlash

First, why did you bounce that check in the first place? If you were trying to pay someone or an entity that you owe money to – a creditor – and you don’t end up making good on that payment, they are the party to worry about. If you don’t take care of that obligation, they can report you to the credit bureaus and that can damage your credit score.

As for the bank, it depends on whether it covers the overdraft for you or not. So if you bounce a check to your credit card company, and your bank makes that payment for you on your behalf, you now owe your bank that money. Now the bank is your creditor. You need to make good on that debt or they will send you to a collection agency and that will damage your credit score.

I chose credit card payments for a reason, and not just because we’re NerdWallet. If you bounce a check to a credit card company, that alone may be grounds for them to report your account as delinquent. A delinquency isn’t as bad as an outright default. Still, if you bounce that check, call your credit card company right away. If you have a great history with them, they may not only waive the returned check fee, but also not report the delinquency, especially if you are ready to make the payment in full. This has happened to me on occasion, and my credit card company always waives both.

Beware collection accounts

Collection accounts are awful for your credit score. Even if you pay the debt, the delinquency remains on your report for seven years unless you can convince the collection agency to remove it.

While we are on that topic, debt collection is all about negotiation. You may not think you have any power with a debt collector, but you do. So if you can afford to pay that debt in an amount that’s even close to the full amount, you should obtain a written agreement that says the collection agency will remove the report when you finish paying them off.

Watching out for next time

There’s one other important issue regarding overdrafts you should be aware of. Are you frequently overdrawn? If so, that may be indicative of two things:

First, you may not be keeping careful enough tabs on your bank account balance. Personally, I hop online and check it every Friday night.

Second, it may indicate that you are spending too much money. That’s why you want to keep a budget as well.

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