Does an Overdraft Affect Your Credit Score?

Unpaid debts can hurt your credit score. Overdraft fees may yield a ChexSystems record, impacting future accounts.
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Written by Chanelle Bessette
Lead Writer
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Edited by Sara Clarke
Assistant Assigning Editor
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Overdraft fees happen and don’t typically have a long-term negative effect on your banking history or customer standing if you take care of it quickly. Not taking care of overdraft fees can lead to consequences such as having a record in ChexSystems, a consumer reporting agency that is like the banking version of a credit check. In the case that your original payment was supposed to go to a creditor and bounced — meaning the payment didn’t go through — a collections agency may get involved, which could negatively impact your credit score for seven years.

Bounced checks and unpaid debts can ding your credit score

If you bounce a check or transaction intended to pay a person or business that you owe money to — such as a landlord, utility company or other creditor — and you don’t take care of that obligation, they can report you to the credit bureaus, which can damage your credit score.

In cases like these, a check or payment bounces because you either opted out of overdraft coverage, or your bank decided to decline the transaction or payment from your account to prevent you from having a negative balance.

»Need help with your credit score? Learn more about how to build credit

Your information can be sent to ChexSystems

If a bank covers your overdraft instead of declining the transaction, then you may be liable for overdraft fees and other related fees, such as a continuous negative balance fee if you don’t bring your account balance above $0. If you don’t pay the overdraft or related fees within a certain amount of time, your bank may close your account, send the fees into collections, send your information to ChexSystems or any of the above.

Being in ChexSystems doesn't directly affect your credit score, but your credit score can be hit if you get sent to collections for not paying your overdraft fees. Having a ChexSystems record also means that it might be hard for you to open bank accounts for a while since banks see that you haven't paid fees in the past.

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You might be denied the ability to open a new bank account

Whether or not your credit score is affected, if your old bank or credit union has reported you to ChexSystems, you may find it difficult to open an account at a new bank or credit union. If you find your application being denied when you try to open an account, you may want to consider opening a second chance checking account instead. These accounts are designed to help people rebuild their banking history, and although they typically come with monthly fees, they also help you manage your money very similarly to a traditional checking account.

How to avoid overdrafts in the future

Look into your bank’s overdraft options. You might have multiple options available to you, including free overdraft protections transfers or overdraft lines of credit. You can also opt out of overdrafts entirely, but that means that any transaction you make will be declined if it would lead to a negative account balance. This option is good for avoiding overdraft fees, but it can create problems when you try to pay for something and the transaction doesn’t go through.

Sign up for low balance alerts. Many banks offer alert systems for text or push notifications that let you know if your balance has dropped below a designated threshold. These alerts can help you be more cautious about spending or notify you to transfer more funds into your account.

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