Your credit score is based on your credit history. Your credit history is a complete accounting of all of your debts, and each and every payment you made on them. Since the credit score is becoming more and more important in our day-to-day finances, it’s important to understand everything that can affect it. What about overdrafts on your bank account?
What about bounced checks?
Do the fees and penalties your bank charges you go into your credit history?
The days of bounced checks have more or less been replaced by the days of the overdraft fee. If your check exceeds the amount in your account, the abnk will usually honor the check in full, and put your bank account into negative territory. They will also add a fee for their trouble, which puts you even further into the red.
The same applies to automatic bill payments. In either case, your check will not “bounce” back to you, but you will be on the hook for a penalty of anywhere from $20 to $75 per transaction.
The good news is that since the credit history tracks your payments made on debts, the overdraft coverage from the bank will protect you. If the payment bounced back to you, and was not paid in full by the bank, then it would be an instant black mark on your report. But since the bank covered you temporarily, the payment goes through and you are shown as paying on time.
Although overdrafts and bounced checks don’t immediately impact your credit, they can have an affect on it.
If you are repeatedly overdrawing your account, or if you bounce checks and never make restitution on what you owe, then your bank will report you to ChexSystems. If you are reported to this company, then your banking history will come into play strongly, and your credit score will suffer.
ChexSystems has the ability to close your account, and make sure you can’t just go to another bank and open another. They can file a claim that will stay on your credit history for five years. This will not only hurt your chances of having a bank account, but also for getting any sort of credit card or loan.
What About Payday Loans?
Certain types of loans, like car title loans and payday loans, do not use credit checks, and do not care about your history or score. But your overdrafts will still haunt you.
More of often than not, these private or direct lenders will run a “bank check” instead of a credit check. This entails contacting your bank to make sure you have an open, valid bank account, and that there haven’t been any overdrafts in the last 30 to 90 days.
Since these lenders don’t care about your credit, they focus entirely on your recent banking history. Even one recent overdraft or bounced check could stop you from being approved for a payday loan.
Overdrafts & Protection
Most banks offer automatic overdraft protection. It is more common to have to opt out of such a program, instead of having to opt in for it. Some people do not like the overdraft protection, because those extra fees can really pile up, but it is certainly the smart choice if you are interested to maintaining, or improving, your credit score.
Check the fine print with your bank. Find out how much their overdraft fees are, and if it is really worth it. If they seem high to you, shop around for rates at other banks.