Overdraft protection's affect on credit history
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?
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Having funds automatically withdrawn from your savings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.
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.