There was an estimated average of 6.7 overdrafts per household in 2011, according to a study by Moebs Services. It's a good thing overdrafts don't directly affect credit since checking account information isn't reported to the credit bureaus. But, even though credit bureaus aren't notified when you bounce a check, overspending your checking account could still hurt your chances at getting approved for a credit card or loan.
When you apply for a credit card or loan at one of the big banks, they don't just consider your credit history as reported by the major credit bureaus, Equifax, Experian, and TransUnion. Banks also consider your banking history with them. For example, if you apply for a credit card issued by Chase, the bank will often consider your history with all Chase accounts. So previous overdrafts on your Chase checking account can keep you from getting approved or from getting the best terms.
Credit cards issued by a bank don't include the bank's name in the credit card's title, so it may not be obvious that a bank that you've had previous trouble with is issuing the card.
Overdrafts tied to a credit card or line of credit will go on your credit report since both types of accounts are reported to the credit bureaus. These balances will affect your credit the same way as any other credit account. High or past due balances can keep you from getting approved for credit cards and loans.
Your trouble getting approved could go beyond just the bank with the outstanding balance. After a certain amount of time, an unpaid overdraft balance will go on your credit report because either the bank or an assigned collection agency will report the debt. It's important to clear up overdrafts before they get too delinquent.
Federal law now allows you to prevent some overdrafts by opting-out of debit card overdraft transactions. This means the bank will deny any debit card transaction that exceeds your account balance – if you make such a transaction. The downside is that your debit card might be declined. Unfortunately, there's no overdraft opt-out for checks.
If you've overdrafted in the past, you might have realized how little control you have over preventing overdrafts. The Consumer Financial Protection Board is currently investigating a bank practice where transactions are reordered in a way that would cause the most overdrafts. You might make transactions in a certain order thinking you'd only overdraft once or twice. But, when the bank has a stack of transactions, they often process the largest transaction first, which causes more of your transactions to overdraft.
Linking your checking account to a savings account can prevent overdrafts if you choose not to opt-out. The bank will automatically transfer money from your savings account to cover the overdraft. There's usually a fee for this service, but it's less expensive than the overdraft fee and no big threat to your ability to get approved for future credit cards and loans.
When you apply for a credit card or loan at one of the big banks, they don't just consider your credit history as reported by the major credit bureaus, Equifax, Experian, and TransUnion. Banks also consider your banking history with them. For example, if you apply for a credit card issued by Chase, the bank will often consider your history with all Chase accounts. So previous overdrafts on your Chase checking account can keep you from getting approved or from getting the best terms.
Credit cards issued by a bank don't include the bank's name in the credit card's title, so it may not be obvious that a bank that you've had previous trouble with is issuing the card.
Overdrafts tied to a credit card or line of credit will go on your credit report since both types of accounts are reported to the credit bureaus. These balances will affect your credit the same way as any other credit account. High or past due balances can keep you from getting approved for credit cards and loans.
Your trouble getting approved could go beyond just the bank with the outstanding balance. After a certain amount of time, an unpaid overdraft balance will go on your credit report because either the bank or an assigned collection agency will report the debt. It's important to clear up overdrafts before they get too delinquent.
Federal law now allows you to prevent some overdrafts by opting-out of debit card overdraft transactions. This means the bank will deny any debit card transaction that exceeds your account balance – if you make such a transaction. The downside is that your debit card might be declined. Unfortunately, there's no overdraft opt-out for checks.
If you've overdrafted in the past, you might have realized how little control you have over preventing overdrafts. The Consumer Financial Protection Board is currently investigating a bank practice where transactions are reordered in a way that would cause the most overdrafts. You might make transactions in a certain order thinking you'd only overdraft once or twice. But, when the bank has a stack of transactions, they often process the largest transaction first, which causes more of your transactions to overdraft.
Linking your checking account to a savings account can prevent overdrafts if you choose not to opt-out. The bank will automatically transfer money from your savings account to cover the overdraft. There's usually a fee for this service, but it's less expensive than the overdraft fee and no big threat to your ability to get approved for future credit cards and loans.
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