How Does an Overdraft Affect Your Credit Score?

Table of contents
does overdraft affect credit score
Organize, Pay, and Build Your Credit Profile
Consolidate bills and BNPL payments, effortlessly manage your budget, and avoid overdraft fees. Join Cushion now and build your credit history with the payments you're already making!
Sign up for Free

43% of Americans were hit by an unexpected overdraft fee in 2023, according to the CFPB’s latest survey. With most overdraft fees costing up to $35, learning how to prevent them is vital to keeping your finances in order.

Do Overdrafts Affect Your Credit Score?

No, overdrafts don’t directly affect your credit score because checking accounts aren’t included in your credit report. However, like with most debts, you could get sent to collections if you don’t resolve it in a timely manner. In that case, your credit score will be affected negatively.

What is an Overdraft?

An overdraft is what happens when you make a transaction that exceeds your account’s current balance. If you’ve opted for overdraft coverage, the bank will pay for the transaction and charge you an overdraft fee (on top of what you owe due to the overdraft).

Overdrafts can happen as a consequence of the following transactions: withdrawals, debit card purchases, automatic bill payments, and checks.

How to Avoid Overdraft Fees

Overdraft fees are relatively easy to prevent. In fact, there are multiple ways you can do so:

1. Maintain a Financial Cushion

Keeping at least an extra month’s worth of funds in your checking account is the most surefire way of preventing overdrafts. Even the most organized people can get hit by an overdraft if they don’t have a financial cushion.

Deposits, for example, may have a delay before they become available to use. And that delay could easily cost you several overdraft fees.

If you don’t want your checking account to have excess funds, then you can instead link your savings account to it. Most banks offer overdraft protection that allows them to automatically take funds from your linked savings account to prevent an overdraft.

Be mindful that some banks charge a fee for this, however. In that case, it’s usually better to have extra funds in your checking account.

3. Keep Track of Your Balance

Many banks have balance alerts that you can toggle. Sure, push notifications can get annoying. But being pestered by balance alerts is better than getting hit by an overdraft fee.

Turn Daily Expenses into Credit Profile Wins
Consolidate bills and BNPL payments, effortlessly manage your budget, and avoid overdraft fees. Join Cushion now and build your credit history with the payments you’re already making.
Get started

How Many Overdrafts Can I Get in a Single Day?

Unfortunately, you can get hit by multiple overdraft fees in a single day. However, there are daily limits for overdraft fees. These limits can vary depending on the financial institution. Chase, for example, has a maximum of 3 overdraft fees per day. Wells Fargo also has the same daily limit.

Do All Banks Charge Overdraft Fees?

Surprisingly, not all banks charge overdraft fees. Citibank, Capital One, and Ally Bank are examples of banks that don’t charge overdraft fees. In most cases, transactions that exceed your balance with these banks will be declined unless you opt for overdraft protection.

Bank  Overdraft Fee
Wells Fargo $35
Chase $34*
USAA $29
Bank of America $10
Citibank $0
Capital One $0
Ally Bank $0

*For overdrafts of more than 50$ that haven’t been resolved at the end of the business day

Summary

Overdrafts don’t affect your credit score unless you get sent to collections. This is because checking accounts aren’t included in your credit report. Even though they don’t affect your credit, they can still impact your finances due to the hefty overdraft fees that some banks charge.

In order to avoid overdraft fees, you can maintain a financial cushion, link your savings account to your checking account, or just keep careful track of your balance.

Last Updated on March 03, 2024
Found this helpful?
Dig deeper into your finances by starting a Free Trial with Cushion.
Get started
Cushion is your go-to app for organizing, paying, and building your credit profile with your existing bills, subscriptions, and Buy Now Pay Later.
Disclaimer: The information provided in this website is for educational purposes only and should not be considered as financial advice. Consult with a financial professional for personalized guidance regarding your specific situation.
Organize, Pay, and Build Your Credit Profile
Consolidate bills and BNPL payments, effortlessly manage your budget, and avoid overdraft fees. Join Cushion now and build your credit history with the payments you're already making!
Sign up for Free

Get the credit you deserve for payments you're already making.

Your credit profile will thank you.
Get started