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Overdraft protection's affect on credit history

Dear Dr. Don,
I have an online checking account that offers free overdraft protection. It automatically withdraws funds from my savings account for overdrafts. Does using this service hurt my credit?
Jose Jury-rig

Dear Jose,
Financial institutions can provide overdraft protection in several different ways with the most common being either linking the account with a second account or having a line of credit available. You may be able to layer this protection by having both a linking account and a line of credit to protect you from overdrafts.

Having funds automatically withdrawn from your savings account to cover an overdraft in you checking account won't adversely affect your credit. It's protecting your banking relationship.

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Consumer reporting agencies track your banking history, akin to how credit bureaus track your credit history, and overdraft protection keeps that report clean. ChexSystems is the major reporting agency in this market, and you can order a copy of your consumer report from them if you're concerned about your banking history. Your right to dispute information in this report falls under the Fair Credit Reporting Act, just like it does for credit reports.

A line of credit will show up on your credit report and can limit your ability to borrow additional funds. Prospective lenders will look at the credit lines available to you in making the decision to approve a credit application. An unused $1,000 line of credit won't have a major impact on a firm's decision to extend you credit, but it is a consideration.


-- Updated: April 4, 2005

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