In this blog, you will know how does overdraft affect credit score ?. Basically Overdraft is useful to provide the facility in case of financial needs. If Don’t take this seriously this debt can affect your score negatively. Read more to know about how does overdraft affect credit score.

What is an Overdraft?

Basically Overdraft means when there isn’t enough Money in our bank account then we can take the money from the bank as a loan. There is interest on that loan, and also fee per overdraft
That loan they give us as a credit and we have to pay interest on it.

What is a credit score?

A credit score is a number which includes number from 300 to 700 to give the review and representation of our credit use for our individual and business. Credit report and credit score is prepared by the credit behavior and such a way that how you are likely paying a loan back on time, it is based on your use of credit card.

Does overdraft affect credit score?

The answer is Yes, Yes overdraft affect credit score because credit report includes all the details of your debts, history of transactions, history of payments and all the details help new leaders to decide whether you are responsible to pay the debts on time or not. If if you used an overdraft but you paid the amount back in the end of the month then you will show zero balance in your credit report weather and overdraft will affect your credit card or not also depend on what your bank account looks like on that specific day.

However, if you have missed payments or didn’t paid blown at time then the bank has levied charges over it, and this will have a negative impact on your credit score and credit report.

Is overdraft good or bad ?

No Doubt, Overdraft is not good for the Credit score and Credit Report. I will make negative impact on your credit score and report.

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Ways an overdraft can affect your credit score :-

History of pending payments– Credit score can drop if you have pending payments at the end of the month and if you only repay the minimum amount of due.

High credit utilization– Your credit Behavior will drop your credit ratings if you have not paid the overdraft is shown and if it shows high quality utilization it will make a negative impact on your credit score keep your credit score low to improve your credit score.

High interest– If you are using overdraft again and again you have to pay high interest to the banks which can result in cycles of debt. Too many pending credit can take you to the high risk.

What are authorized and unauthorized overdraft?

Authorized overdraft give the facility to the peoples where the bank allows them to spend more money than they have paying interest over the overdraft amount. In this case there’s a pre-agreed overdraft.
Similarly unauthorized order means they borrow the money from the banks more than the pre-set overdraft limit and unauthorized overdraft maybe damaging your credit score than managed one.

Applying for an overdraft affect credit score?

Whenever you apply for an account that offers UN overdraft facility the bank of The financial institute will take the closely check your credit history and do a hard enquiry about you to see if you have responsible to borrow or not. Each time bank will do hard enquiry to check your credit score and credit report. bank will check in a short span of time that you have financial difficulties and may not be able to pay back your depts on Right Time.

Higher overdraft affect your credit Rating?

Whenever a person apply for a bigger over draft the bank will do a higher and hard enquiry for his credit score or credit report to check the person is legit or not if you use more of your over drops it will make your credit score more higher and you are great score will be higher and higher. you will face a lot of difficulties.

Whenever you have a higher financial requirement. it’s better to apply for a larger overdraft with your bank rather than exceeding the credit limit every time.

Lower overdraft affect your credit rating ?

Whenever you have lower overdraft then it is better for you. In fact, Bank also prefer someone who spend less rather than more. It will helpful for you to reduce your overdraft and it will improve your credit score.

Note :-

1. Don’t take more overdraft.
2. Pay overdrafts on time.
3. Don’t exceed your overdraft limit.
4. whenever you need a larger amount you should go to the bank for overdraft rather than using your credit.