Does an Overdraft Affect Your Credit Score?

An overdraft won’t appear on your credit report, but leaving it unpaid can create bigger problems. If the negative balance is sent to collections, it can damage your credit for years. On top of that, overdraft fees can pile up quickly, accounts can be closed, and you may have trouble opening a new one elsewhere.

The best way to avoid those consequences is to act fast. Most banks give you a short grace period to bring your account back to positive. Setting up alerts, reviewing transactions often, and linking a backup account can help you steer clear of overdrafts altogether.

How Banks Handle Overdrafts and Fees

An overdraft happens when your spending or scheduled payments exceed the available balance in your checking account. Banks will usually cover the transaction but charge an overdraft fee, which is often around $35 per item.

If multiple transactions hit while your account is negative, the fees can stack quickly. Some banks also add extended overdraft fees if the negative balance is not resolved within a set number of days, making the total cost much higher than the original shortfall.

Bank Grace Periods for Fixing a Negative Balance

Most banks allow a brief window to bring your account back to positive before more charges apply. This grace period can be as short as one business day or as long as a week, depending on the financial institution.

If the deadline passes, additional fees may be charged and your account could move closer to being closed. Acting quickly—by transferring funds, making a deposit, or contacting your bank—helps avoid these extra costs.

Other Consequences of Ignoring an Overdraft

Leaving a negative balance unresolved can lead to your bank closing your checking account and any linked accounts. The closure may be reported to consumer reporting agencies like ChexSystems, which track banking activity.

A negative mark in these systems can make it difficult to open a new bank account elsewhere, and some banks may require you to clear any past debts before approving your application.

When an Overdraft Can Impact Your Credit Report

Overdrafts are not reported directly to credit bureaus, so they will not appear on your credit report under normal circumstances. However, if you fail to pay the negative balance and the bank sends the debt to a collection agency, the collections account can be reported to the credit bureaus.

This can remain on your credit report for up to seven years and may lower your credit score, making it harder to qualify for loans, credit cards, or favorable interest rates.

Ways Overdrafts Can Indirectly Lower Your Credit Score

While overdrafts themselves are not reported to credit bureaus, they can still lead to credit problems. Paying overdraft fees might leave you short on cash for other obligations, which can cause missed or late payments on loans, credit cards, or utility bills. These late payments are reported to the credit bureaus and can lower your credit score significantly.

Another indirect effect comes from relying on credit cards or personal loans to cover frequent overdrafts. This can raise your credit utilization ratio—the percentage of available credit you are using—which is a key factor in your credit score. A high utilization ratio can push your score down and make borrowing more expensive.

How to Prevent Overdrafts and Protect Your Credit

Avoiding overdrafts comes down to staying aware of your account balance and having backup measures in place. These steps can help you steer clear of fees and keep your finances on track.

• Set low-balance alerts: Get notified when your account drops below a set amount so you can deposit funds before payments clear.
• Review transactions often: Check for pending charges or unauthorized activity that could push you into the negative.
• Link a savings account: Allow automatic transfers to cover shortfalls when your checking balance runs low.
• Track upcoming bills: Keep a calendar of due dates to make sure deposits are in place before payments post.
• Weigh overdraft protection carefully: Overdraft protection can prevent declined transactions but may cost more in fees than it saves.
• Use a budgeting app: Budgeting apps like Monarch or Empower can give you a real-time view of your balances across all accounts.
• Consider a low-fee bank: Some online banks, like SoFi, Current, and Chime, have no overdraft fees or more forgiving policies.

What to Do if You Have Overdrafted

A quick response can stop a small overdraft from turning into a bigger financial problem. Here’s how to get back on track right away and prevent future issues.

• Deposit funds immediately: Bring your balance back to positive as soon as possible to stop further fees.
• Ask for a fee waiver: Many banks will reverse the charge if it’s your first overdraft.
• Pause scheduled payments: Stop automatic withdrawals until your balance is stable.
• Build a small savings buffer: Even a few hundred dollars can help you cover shortfalls without overdrafting.
• Adjust bill payment timing: Schedule payments for a few days after your paycheck arrives to avoid timing conflicts.

Final Thoughts

An overdraft will not directly damage your credit score, but ignoring it can set off a chain reaction of fees, missed payments, and even collections. Those consequences can have a lasting effect on your finances.

The key is to respond quickly when your account goes negative and put systems in place to avoid repeat issues. Alerts, linked accounts, and a small savings buffer can make the difference between a temporary inconvenience and a long-term setback.

By staying on top of your account activity and acting quickly when problems arise, you can protect both your bank balance and your credit health.