Do Debit Overdrafts Affect My Credit?

Debit cards offer instant access to a checking account, but because a checking account isn't a credit account, spending patterns -- including occasional overdrafts -- usually have no bearing on a credit report. However, a few unusual circumstances related to the habitual misuse of a checking account can feed a negative credit record.

Credit and Demand Deposit Accounts

A credit account requires a lender to provide access to cash -- even cash secured with a deposit -- and the borrower to pay back that loan, usually with interest. A demand deposit account (DDA), by contrast, requires no loans. DDAs are better known as checking accounts; the funds are wholly owned by the account holder. Because the bank provides no money to a DDA account holder, there is no credit relationship at stake that could be affected by overdrafts.

Overdrafts

Some banks allow customers to overdraft their accounts, usually for a fee of $20 to $40 per occurrence as of July 2011. These overdrafts are usually recovered at the next deposit into the customer's account. Some banks allow a customer to overdraft using a debit card to avoid embarrassment at the point of sale. An overdraft in itself will have no impact on the account holder's credit score.

Check Acceptance

If an overdraft results in a reversed transaction -- that is, if the debit "bounces" and the original vendor doesn't get paid -- the checking account could be referred to a clearinghouse like ChexSystems, making getting paper checks accepted at retailers more difficult and reducing the reported person's ability to open checking accounts at banks that joined the clearinghouse. In addition, a retailer could send the reversed debit to a collections agency or even to the police department, a turn of events that could significantly impair his credit score.

Collections Records

When a bank closes an overdrawn checking account, it may refer the account to a collections agency to seek repayment. If the account does hit collections, a valid debt does get reported to the credit bureaus. So even though the overdrafts didn't affect the account holder's credit, having the checking account closed and sent to collections -- if reported to the bureaus -- may have a significant adverse impact on her credit score.