An overdraft allows spending beyond the money that is present in your account. So the banks allow an overdraft facility and while the do allow the transaction to go beyond the mind that is present in your account pay liable to charge an extra fee. Bank overdrafts are not reported that you to the credit bureaus and hence are not likely to have the right impact on your credit score. However if you do not cover the overdraft quickly enough a bank may pass on the debt to a collection agency for recovery. If the collection agency reports to the credit bureau a collection account will be opened on your credit file which will in turn have an effect on your credit score. A collection account will remain on your credit report for a period of seven years from the date that’s the debt was first reported even after you have paid it unless you convince the collection agency to remove it in exchange for payment or settlement.
Credit Score May Get Hurt When a Cheque Bounces
If you pay your credit card Bill through a check and the check is returned for insufficient funds your credit score could get damaged. Your credit card company will charge you a returned check fee and your account will be reported as delinquent to the credit bureaus. One delinquency may not have much of an impact if you’re strong credit history but repeated delinquencies will cause more damage to your credit score. You should ensure that you have enough funds to cover the check and use a check to pay your credit card Bill.