With the influx of technology, many individuals no longer spend countless hours balancing their checkbook as 24/7 they can go online and get a general idea of their checking account balance and upcoming debt. As a safety precaution, many people opt in to an overdraft reserve account, thus ensuring that payments don’t bounce. This is considered a line of credit and by not using it properly, consumers risk negatively influencing their credit score.
Since an overdraft reserve account is a line of credit, consumers may be tempted to dip and spend that money on hand. However, unlike credit cards, there is no grace period to pay back this debt and the money must be replaced immediately. If not, consumers are in danger of getting a “late payment” penalty on the account.
The time in which one pays off their credit card bills is the most important contributor to the FICO score equation. The timeliness of repaying debt accounts for a 35% in ones total credit score formula.
If used properly overdraft protection is a great instrument to have in place. This added level of security would help eliminate costly overdraft penalty fees, provide an extra couple of hours if one is waiting for a deposit to post in their account and can help consumers out if a sloppy accident does occur. Consumers would be wise to avoid using this as a line of credit as it may be a deep hole to get out of.
