Nowadays, credit scores have a significant impact on our lives. They can dictate the amount of money we can borrow and at what rate, which is crucial when it comes to certain milestone purchases like cars and homes. For this reason, you may want to do everything possible to avoid harming it. But, are non-sufficient fund (NSF) fees something that can damage it as well?
NSF Fees Are Part of Your Checking Account
The first thing that you need to understand is that NSF fees appear on your checking account. Your credit score is based on any debt you might take on: credit cards, loans, mortgages, etc. Your checking account is not money that you owe anyone; it’s money you have at your disposal. Therefore, any activity coming from it is not included in credit reports. A relief, right?
However, you’re not totally out of the woods. Some consumer reporting agencies help banks identity risky customers, which means that they track the activity in your banking accounts: things like overdrafts, bounced checks, and fraud, among others. Whenever you incur a significant amount of NSF fees, it may be reported to banks, which might make it harder for you to open any new bank accounts.
How NSF Fees Can Indirectly Impact Your Credit
While NSF fees are part of your checking account, and they do not count as debt, they might still be able to indirectly impact your credit score.
Whenever an NSF is incurred, it means that there were not enough funds in the account to cover a particular transaction. If this transaction was payment to a merchant or lender, this can put you in a different situation. Why? Because NSF fees will often impede the transaction from happening, which means that you will be late on your payments.
If you make up the payment within the span of a month, you will most likely be okay. However, if a longer amount of time goes by, the merchant might pass your account on to debt collectors. The moment this happens, your credit score can start to get affected.
Consider Overdraft Protection
While NSF fees might not directly affect your credit, when you let them get out of hand, they can still have an impact on it. And if nothing else, they’re still an extra charge on your account that you’d probably rather not pay at all. For that reason, consider overdraft protection to avoid these fees entirely.
Overdraft protection is a service that most banks offer to avoid overdraft or NSF fees; they mostly work in two ways. Some banks let the transaction go through even when there are not enough funds in the account, and for this overspending, they’ll charge you an overdraft fee. If you request overdraft protection, they’ll decline any transaction when the funds in your account are not enough—which will save you from incurring an overdraft fee.
Another way banks can protect you from NSF fees is to have access to your savings account to cover any NSF transaction coming out of your checking account. You will have to grant the bank authorization to do this, and they might still charge you a fee for this service. However, the fee will most likely be much lower than an NSF fee, and they won’t have the potential to affect your credit score down the line.