How Your Banking Habits Affect Your Credit History
Banking Habits That Can Compromise Your Credit Score
When lenders look at your credit score or credit history, one factor in their decision may be your banking history. The way you use your bank accounts can be an indicator to those offering credit, and there are some red flags that get you in a lot of financial trouble.
An overdraft occurs when an account holder draws from a checking account with a dangerously low balance. If the money isn't in the account to withdraw, banks will often charge an additional fee to process the transaction and bill the customer for the balance. Overdrafting is an expensive way to do banking, and those who don't have emergency savings can quickly be swamped by low-balance overdrafts. Overdraft protection, offered by some banks, comes in handy for dealing with low-balance accounts. Customers can also link accounts together, tying a checking account to a savings account, to provide additional overdraft protection.
Bounced checks are more serious. Writing checks without sufficient funds is, in some cases, overtly illegal, especially considering whose name is on the account. The practice of "writing bad checks" is definitely against the law. When an honest account holder bounces a check, illegal consequences may not occur, but the bank will again charge an additional processing fee for bounced checks, and the check writer will inevitably have to pay a larger balance.
Yet another banking feature that can get you in trouble is an "insufficient balance" charge. A bank may impose a monthly charge if there isn't a specific balance in the account. These charges can also deplete your checking or savings account to dangerously low levels. Not all accounts carry low-balance fees, so check the fine print when you're opening an account to see what the requirements are.
So how do you know if these slip-ups or others related to a checking or savings account are affecting your credit? If it's been a while since you reviewed your credit history, it can be tough to tell. Credit monitoring gives you up-to-date information on your credit score, credit history, and how your banking history may be affecting your credit. The three large credit report agencies, TransUnion, Experian, and Equifax, all offer a free credit report annually. If you're worried about your banking history, you can also sign up for a credit monitoring service .
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