Overdraft does not harm credit, but it is not harmless
Most people know that not paying bills on time or maintaining a high balance on several credit cards can result in negative marks against their FICO scores. However, there are some gray areas. For instance, will overdrafts affect a credit score? The answer may surprise you, suggests Bankrate.com’s Dr. Don Taylor, a Certified Financial Planner and Certified Public Accountant.
Bad checks won’t harm your credit by themselves
A college student worried that a checking account scam would harm her fledgling credit appealed to Bankrate’s “Dr. Don” column for advice. Someone had stolen her checkbook and written checks that caused her checking account to go into overdraft. While she was able to get her bank balance back into the black within a couple of weeks, she wondered whether going into overdraft would have an immediate effect on her FICO. Thankfully, no further identity theft occurred after she sent her bank and one of the three major credit bureaus a fraud notification.
According to Taylor, transactions on a consumer’s checking ledger do not have a direct affect on credit scores. Missing bill payments will, but overdrafts won’t in most cases. One exception is when a banking institution does a “hard pull” of a consumer’s credit history when a new checking account is opened.
Keeping tabs on your banking history, free of charge
Taylor suggests that all consumers who are interested in monitoring their banking history as a matter of periodic maintenance look into ChexSystems. This company enables consumers to pull one free banking history report every 12 months, as stipulated in the Fair and Accurate Credit Transactions Act (FACTA). Negative marks remain active for five years.
For those who have ever been denied when trying to open a fresh account at a bank or credit union, ChexSystems is often the perfect place to go for the information that can help consumers understand why they were denied. Even if that isn’t your scenario, it’s worth checking out ChexSystems Consumer Assistance page once per year to review your financial record.
Protect yourself from scams
If you are the subject of a financial scam involving fraudulent checks, contact your banking institution and law enforcement. In the event that you desire to contact your state’s banking commissioner so that others may be protected from similar scams, HSH.com has a list of relevant contact information.