Bank Overdrafts: How Do They Affect Your Credit Score?
67Your History of Borrowing Money is at the Root of all Credit Score Calculations
Can Bank Overdrafts Affect Your Credit Score?
Your credit score is the most important number that a would-be lender or creditor can find out about you when making a decision about a new loan or credit card. Based solely upon this number a financial institution can turn you down flatly for a new loan. Or, they can agree to extend you the loan or new credit card, but at very high interest rates (depending upon your score).
Anybody who cares about their personal finances wants to do whatever they can to preserve a strong credit score. That's why, if you have experienced a few bank overdrafts in the past month or so, you may be concerned that this could have a negative effect on your credit score.
To understand whether it will, it is important to understand how your credit score is calculated.
(Find a list of banks that do not charge overdrafts at all at: Escape Overdraft Fees.)
More FREE Overdraft Fee Information
- Escape Overdraft Fees No Overdraft Fee Checking Escape-Overdraft-Fees.com
Overdraft fees and NSF fees can cost you hundreds in annual fees. No-overdraft-fee checking is just a click away at Escape-Overdraft-Fees.com. - Banks Without Overdraft Fees
Overdraft fees are somewhere between a minor annoyance and a major inconvenience for most consumers. Even if you carefully balance your checkbook and watch your purchases each month, you may still get dinged one or more times per month by fees. That - How to Avoid Abusive Overdraft Charges by Banks
Paying exorbitant overdraft fees to mega-banks each month has become a habit that most people wish they could break. Every time you have an overdraft, you are likely paying $20, $30, $35 or more to your bank in exchange for their covering your overdr
The Formula for Your Credit Score Calculation
How Your Credit Score is Calculated
Your credit score is calculated based upon your history of borrowing and paying back money to creditors. The primary factors taken into account by Experian, Equifax, and TransUnion as they calculate your credit score are:
1. Your history of payments
2. The amount you owe vs. how much you have the right to borrow right now (your total credit line)
3. The total duration of your credit history.
4. How many new credit instruments you have (i.e., if you have been recently approved for multiple cards, that could hurt you).
5. The variety of credit instruments you have. For example, it is better for your score to have department store cards and gas cards rather than just credit cards.
For more on how to improve your credit score, check out: http://www.37-day-credit-plan.info.
The Danger of Overdrafts
There is one major drawback to having too many overdrafts or not paying back your bank for past overdrafts that your bank covered: you may be reported to something called Chex Systems by your bank.
Chex Systems is a database that banks use to share information with each other about checking account holders deemed to pose a risk. Eighty percent (80%) or more of banks use Chex Systems when considering a new checking account application. If you are reported to Chex Systems, your chances of being granted the new account drop drastically.
Meanwhile, for a list of no-overdraft-fee banks, check out: No-Overdraft Fee Banks.
Also, did you know? You can be reported to this database if you have not repaid your bank for past overdrafts or if you have committed some sort of bank fraud (or for other reasons). If you think you have been reported to Chex Systems, you can find non-Chex Systems banks who will consider your application anyway. Visit: Second Chances Checking for more information.
