Overdrafts do not show up on your credit report, so they will not lower your credit score directly

An overdraft happens between you and your bank. Your bank reports it to ChexSystems or Early Warning Services—systems that track checking account behavior—not to the three credit bureaus (Equifax, Experian, TransUnion) that calculate your credit score. A single overdraft, even a large one, does not appear on your credit report and does not change your score.

The damage from overdrafting comes in two other ways: overdraft fees that drain your account immediately, and a pattern of overdrafts that can make banks refuse to open accounts for you in the future. If an overdraft leads to a debt collection lawsuit or an unpaid debt sent to a collection agency, that can eventually reach your credit report—but the overdraft itself does not.

Key Takeaways

  • Overdrafts are reported to ChexSystems and Early Warning Services, not to credit bureaus, so a single overdraft will not lower your credit score.
  • Overdraft fees are charged immediately by your bank and can range from $25 to $38 per transaction, depending on your bank and account type.
  • Multiple overdrafts in a short period can result in your bank closing your account and reporting you to ChexSystems, which makes it harder to open a new account elsewhere.
  • If your overdraft goes unpaid and is sent to a collection agency, that collection account will appear on your credit report and damage your score.
  • Opting out of overdraft protection stops your bank from covering transactions that exceed your balance, preventing overdrafts but allowing transactions to decline instead.

When an overdraft becomes a credit problem

An overdraft only touches your credit score if it turns into a debt that a collection agency buys or if you are sued and a judgment is entered against you. This happens when your bank writes off the overdraft as a loss after you do not repay it, usually after 60 to 90 days of non-payment. At that point, the bank may sell the debt to a third-party collector, and that collector reports the account to the credit bureaus.

The collection account will stay on your credit report for seven years from the date the debt was first reported as delinquent. During that time, it will lower your score and make it harder to borrow money, rent an apartment, or sometimes even get hired. The key difference: the overdraft itself does not cause this damage. The unpaid debt that results from the overdraft does.

How ChexSystems reports affect your banking future

ChexSystems is a consumer reporting agency that tracks checking account history. When you overdraft, your bank reports it to ChexSystems. If you have multiple overdrafts or leave an overdraft unpaid, ChexSystems records that information. Banks use ChexSystems reports to decide whether to open new accounts for you.

A negative ChexSystems report does not lower your credit score, but it can lock you out of opening a checking account at most major banks for up to five years. Some banks will still open accounts for people with ChexSystems records, but they often charge higher fees or require a deposit. If you have been reported to ChexSystems and want to open a new account, look for banks that specialize in second-chance checking or credit unions, which may have less strict ChexSystems policies.

Overdraft fees versus credit damage

The immediate cost of overdrafting is the fee, not credit damage. Most banks charge between $25 and $38 per overdraft transaction. If you overdraft multiple times in one day, you may be charged multiple fees—some banks cap daily overdraft fees at $100 to $140, but others do not. These fees are deducted from your account right away, making your negative balance even worse.

If you overdraft by $50 and your bank charges a $35 fee, you now owe $85. If you do not repay that $85 within a few weeks, your bank may charge additional fees for the continued negative balance. The fees compound faster than the original overdraft, which is why overdrafts spiral quickly if you do not address them. The credit score damage only begins if the debt is eventually sent to a collection agency—the fees themselves do not trigger that.

How to stop overdrafts before they become collection debt

The fastest way to prevent overdraft damage is to repay the overdraft as soon as you notice it. Call your bank, confirm the amount owed (including fees), and transfer money to cover it. Most banks will reverse one overdraft fee per year if you ask, especially if you have been a customer for a while and this is your first overdraft. It is worth asking.

If you cannot repay the overdraft immediately, contact your bank and explain your situation. Some banks will work out a payment plan or waive fees if you commit to repaying the balance within a set timeframe. The goal is to settle the debt before it reaches 60 days past due, which is when banks typically report it as a loss and send it to a collection agency.

You can also prevent future overdrafts by opting out of overdraft protection. When you opt out, transactions that would overdraft your account will simply decline instead of going through. You will not incur overdraft fees, but your card or check will be rejected. This is a safer option if you struggle to keep your balance positive.

What happens if your overdraft goes to collections

If your overdraft remains unpaid for 60 to 90 days, your bank will likely close your account and report the debt to a collection agency. The collection agency then reports the account to the credit bureaus, and it appears on your credit report as a collection account. This will lower your credit score by 50 to 150 points or more, depending on your current score and credit history.

Once a collection account is on your report, you have options. You can pay the debt in full, negotiate a settlement for less than the full amount, or wait for the account to age off your report after seven years. Paying the debt does not remove it from your report, but it changes the status to "paid" or "settled," which is better than "unpaid" for future lenders. If you negotiate a settlement, get the agreement in writing before you pay, and ask the collector to remove the account from your credit report as part of the deal (though they are not required to agree).

Overdrafts and your credit mix

Overdrafts do not count as a type of credit account, so they do not affect your credit mix—the variety of credit types (credit cards, loans, mortgages) that make up 10% of your credit score. A checking account is a deposit account, not a credit account. Even if you overdraft repeatedly, it does not change your credit mix because you are not borrowing money from the bank in the traditional sense.

However, if an overdraft is sent to collections and reported to the credit bureaus, the collection account itself becomes part of your credit report and will lower your score. The damage comes from the collection account, not from the overdraft or the checking account itself.

Frequently Asked Questions

Will one overdraft hurt my credit score?

No. A single overdraft does not appear on your credit report and will not lower your credit score. It will appear on your ChexSystems record, which banks use to decide whether to open new accounts for you, but ChexSystems does not affect your credit score. The only way an overdraft hurts your credit is if it goes unpaid for months and is sent to a collection agency.

Can I get an overdraft fee reversed?

Yes, many banks will reverse one overdraft fee per year if you call and ask, especially if you have a good account history. Some banks will reverse multiple fees if you explain a hardship. There is no may provide, but it is always worth asking. Get the name of the person who helped you and ask them to note the reversal in your account.

How long does an overdraft stay on ChexSystems?

Negative information on ChexSystems typically stays for five years. After five years, it is removed and banks will no longer see it when you apply for a new account. If you need to open an account sooner, look for banks that offer second-chance checking or credit unions, which may not check ChexSystems as strictly.

What is the difference between overdraft protection and opting out?

Overdraft protection means your bank will cover transactions that exceed your balance and charge you a fee. Opting out means transactions will decline instead of going through. Opting out prevents overdraft fees but may result in declined purchases or bounced checks. Overdraft protection prevents declined transactions but costs you in fees.

If I pay off a collection account, will it improve my credit score?

Paying off a collection account does not remove it from your credit report, but it changes the status to "paid," which is better for your score than "unpaid." The account will still lower your score, but less severely. The collection account will remain on your report for seven years from the original delinquency date, regardless of whether you pay it.