Overdraft Protection

An Overdraft Agreement, also known as Overdraft Protection, is an agreement tied to your checking account which will allow you to draw upon it as needed, such as a line of credit. If your checking account reaches below zero, your overdraft line will deposit funds into your account to cover the deficit. It’s a great way to cover you during a shortfall.

An overdraft line is a good start to rebuilding your credit after a bankruptcy. The bank will monitor your checking account and if you are in good standing for a period of time, your approval status for an overdraft line will be favorable. It may be easier to obtain an overdraft line at a smaller community based bank, whereas they are more willing to compete for your personal business.

The overdraft line is usually a very small in amount, such as $250-$500. The interest rate for the repayment amount is usually higher than 19% APR (annual percentage rate), but the repayment terms are flexible. You repay the overdraft as you deposit funds into your checking account.

Your deposit is first applied to the amount of overdraft you owe and then the remainder fills your checking account. The funds from the overdraft act as a short term loan and are very helpful if you happen to fall short from time to time.

If, however, you are unable to deposit funds to cover your overdraft and your account is exceedingly growing lower past the agreed upon overdraft limit this will add further damage to your credit report. It’s important to stay in good standing with the bank and to handle your account as agreed.

Going over the agreed upon overdraft limit will cause further fees to be assessed. Fees are assessed by the number of items exceeding this limit. If you have a $3 check clearing past your $500 limit, you may incur a $35 penalty for this item alone. The additional fees add up quickly and may be uncontrollable for you to pay back right away. It’s important to read your overdraft agreement to know the terms and conditions of the line.

Overdraft Agreements can be an asset in rebuilding your tarnished credit after bankruptcy. It’s important to abide by the agreement in order for the bank to report favorable credit history payments to the credit bureaus. Overdraft protection is an asset to any checking account and especially an asset for rebuilding the stained credit history after an unfortunate bankruptcy.