Overdraft Line of Credit

Anyone who has a checking account should look into getting an overdraft line of credit. While you may not intentionally bounce checks, it sometimes happens. When it does, the bank charges you a non-sufficient funds fee. And, the establishment to which you wrote the check may also charge a fee. In addition, the check can be resent to the bank numerous times, and if the funds are still not there you will be charged these fees each time. It can get very expensive if this happens. This is where overdraft protection comes in handy.

Most all banks and credit unions have overdraft protection, however not all customers are eligible. Usually this service is based on credit worthiness, as the overdraft protection is basically a loan. So, when you apply for an overdraft line of credit the financial institution will pull your credit report before they make a decision. The amount loaned can range from hundreds to thousands based on a variety of factors which include your credit rating. You should know that just because you have overdraft protection, it is not a free pass to write bad checks. Bouncing checks should be avoided if at all possible, even with this protection in place.

When you go to open a checking account with a bank or credit union, you will usually be asked if you would like to apply for an overdraft line of credit. This is a good time to do so. If you are approved, you will receive information and documentation on this line of credit including how much protection you have. If you are denied, the financial institution should tell you why you were not approved. Also, you should by law be able to receive a free copy of your credit report as you would if you were denied for a credit card or loan by requesting a copy by mail.

If you do have overdraft protection, you will be charged interest each time this form of credit is used. The amount is repaid when your checking account has enough money in it to cover the overdraft and the overdraft loan protection amount. The best way to find out all the details about how this service works is to speak with a loan officer at your bank or credit union. If your credit is not up to par and you are denied overdraft protection, it is a good idea to evaluate your report and work on improving your score by repaying debt then slowly opening credit accounts and paying them on time.

One way to avoid NSF fees in the first place is to use a check card rather than paper checks. A check card usually says Debit on the front but it can be run as credit or debit with most any vendor. You can also withdraw money from the ATM machine with this card. If you do not have the funds available in your account to cover your purchase or withdrawal, your transaction will be denied and there will be no overdraft charges to pay. A check card is commonly issued with most every checking account at your request.

An overdraft line of credit has its good points, for example not everyone abuses this privilege and rarely needs to use this type of protection. If you are smart with managing your money, you may never need to use the overdraft protection but it is a good thing to have just in case. One of the best ways to avoid overdraft charges if you use paper checks is to keep a detailed record of every check you write down to the penny and balance your checkbook regularly.