Does Overdraft Affect Credit Scores?

Do Overdrafts Affect Your Credit Score?

You might’ve heard that checking account activity doesn’t show up on credit reports, but does overdraft affect credit scores in other ways? The short answer is no, not directly. But there are some important exceptions. An overdraft won’t show up on your credit report right away, but how you handle it can set off a chain reaction that absolutely impacts your score.

Here’s what you need to know about overdrafts, credit scores, and the habits that can protect your financial health.

What Is an Overdraft?

An overdraft happens when you spend more than what’s available in your checking account, and your bank covers the difference, usually for a fee. You might have overdraft protection, which automatically pulls money from a linked savings account or credit card. Or you might get hit with multiple fees for each transaction that overdraws your account.

While this might seem separate from your credit profile, the way you manage your bank account can impact your creditworthiness down the line.

Does Overdraft Affect Credit Scores?

Let’s get this part clear. Overdrafts do not directly affect your credit score. Here’s why: 

• Credit bureaus don’t track checking account activity. Your credit score is based on data related to credit cards, loans, and other forms of borrowing. Overdrafts, which occur in checking accounts, are not part of that ecosystem because they aren’t related to debt and borrowing.
• Overdrafts are not credit accounts. Unless your bank links overdraft protection to a credit card or personal line of credit, overdrafts are not viewed as “borrowing” in the eyes of the credit bureaus.

So in most cases, if you go over your balance and pay the fees, your credit score won’t take a hit.

Over 200,000 people have rebuilt their credit with our proven strategies. Join our free credit-education program here. 

When Overdrafts Can Hurt Your Credit

Even though the answer to “does overdraft affect credit scores” is usually no, there are some situations where overdrafts can lead to credit damage if left unresolved: 

• Unpaid overdraft fees: If you ignore the negative balance and let it sit unpaid, your bank might eventually close your account and send the debt to a collection agency.
• Collections: Once a debt is in collections, it will be reported to the credit bureaus, and that will affect your credit score.
• ChexSystems: Banks report overdrafts and other checking account mismanagement to ChexSystems, a consumer reporting agency. This doesn’t impact your credit score, but it can make it hard to open new checking accounts.

So while the act of overdrafting won’t lower your credit score, neglecting to resolve it might.

What Factors Determine Your Credit Score?

If overdrafts don’t typically count, what does? Your credit score is a measure of how you handle credit, not your checking account. It changes frequently, sometimes daily, as lenders report new activity, old accounts fall off, or inquiries are added. Although FICO uses 22 criteria in its scoring algorithm, five major categories do most of the heavy lifting.

Payment History (35%)

This is the single most important factor. It includes your track record on credit cards, loans, mortgages, and other accounts. A late payment, especially one that’s more than 30 days overdue, can cause serious damage.

The following are included in your payment history: 

• Mortgage and car loan payments
• Credit card payments
• Collections and charge-offs
• Public records like bankruptcy or foreclosure

But these aren’t: 

• A bill paid one day late
• A bounced check that was quickly resolved
• A utility bill, unless it gets sent to collections

Amounts Owed (30%)

This part of your score looks at how much you owe compared to how much credit you have available. Credit cards matter most here. If your cards are close to maxed out, your score takes a hit—even if you’re making payments on time.

A good rule of thumb? Try to keep the balance on each card under 30% of your limit. So if your card has a $1,000 limit, aim to keep your balance below $300.

Also: 

• Don’t move all your debt onto one card, even if it has a lower interest rate. That can hurt your score.
• It’s better to spread your balances across a few cards and keep them all under that 30% mark.

Loans like car payments and mortgages also factor in, but new loans can hurt your score a little at first. Once you show you’re making steady payments, your score will start to recover.

Over 200,000 people have rebuilt their credit with our proven strategies. Join our free credit-education program here.

Length of Credit History (15%)

The longer you’ve had credit, the better it looks on your report. Lenders want to see that you’ve been managing credit for a while, not just a few months. They look at a few things: 

• How long your oldest account has been open
• The average age of all your accounts combined
• How recently you’ve used your accounts

Every time you open a new credit card or loan, it lowers the average age of your credit history, which can drag your score down a bit. 

Also, don’t be too quick to close old accounts, even if you don’t use them often. That old credit card you’ve had forever? It’s actually helping your score just by being there. Unless there’s a good reason to close it (like high fees), it’s often better to leave it open.

New Credit and Inquiries (10%)

Every time a lender checks your credit because you applied for something, like a credit card, car loan, or mortgage, it creates what’s called a hard inquiry. That can drop your score a little, especially if you don’t have much credit history or if you’ve applied for several things in a short amount of time.

But not all credit checks hurt your score. When you check your own credit, that’s a soft inquiry … and it doesn’t affect your score at all.

Also good to know: if you’re shopping around for a car loan or mortgage, the credit bureaus give you a break. All those checks within a 14 to 45 day window only count as one inquiry, so you won’t get penalized for comparing your options.

Credit Mix (10%)

Lenders want to see a mix of credit types. A healthy profile might include: 

• A mortgage
• An auto loan
• Credit cards
• A personal loan
• Credit rebuilder loans

Watch & Learn: About the Credit Rebuilder Program

What Doesn’t Affect Your Credit Score

It’s just as important to know what doesn’t show up on your credit report. Many people panic over things that won’t move the needle. Here are a few examples:

• Overdrafts on your bank account (unless they go to collections)
• Bounced checks (again, unless they are sent to collections)
• Late payments under 30 days past due
• Utility or cell phone payments (unless they’re in collections)
• Your salary or job history
• Your age, marital status, or education level
• Interest rates or fees on credit cards

That said, new credit scoring models like FICO Expansion Score and VantageScore are starting to experiment with including things like rent and utility payments, but they’re not widely used yet.

How Long Do Items Stay on Your Credit Report?

Most negative items stay on your credit report for seven years. But they don’t affect your score equally over that time.

• Recent late payments cause the most damage
• Old bankruptcies still matter, but less so as time goes on
• Inquiries stay for two years but affect your score for only one

Final Answer: Does Overdraft Affect Credit Scores or Not?

Not directly. But unpaid overdrafts that go unresolved can become collection accounts, and those do affect your score.

The best way to avoid trouble is to: 

• Monitor your checking account regularly
• Use overdraft protection wisely
• Repay any negative balances quickly

And remember, while overdrafts are unlikely to affect your credit report today, your broader financial habits matter more than any single mistake. If you’re working toward a stronger credit score, focus on the five core areas: paying on time, keeping balances low, building credit history, diversifying your credit, and applying for new credit strategically. 

Your checking account is not part of your credit profile, but your financial discipline is.

Over 200,000 people have rebuilt their credit with our proven strategies. Join our free credit-education program here.