How Does The Overdraft Line Of Credit Work
As of May 15, 2020, we will no longer originate new Overdraft Lines of Credit to customers. However, any existing Overdraft Lines of Credit will remain open.
Instead of charging overdraft fees when your balance goes below $0.00, we offer the option of an Overdraft Line of Credit with 360 Checking. Depending on the limit you are offered and select, we will process your transactions on your 360 Checking Checking even if they will dip you below $0.00. We will only cover transactions that stay within the maximum amount of your Overdraft Line of Credit.
Instead of paying an overdraft fee, youâll only pay interest on the amount you borrowed for the amount of time itâs outstanding .
Hereâs an example: A 360 Checking customer has $1,000 in his 360 Checking, and an Overdraft Line of Credit limit of $100. He buys a new laptop computer for $1,050 using his 360 Checking Card. This transaction will be processed using the $1,000 balance in his 360 Checking, and $50 from his Overdraft Line of Credit. His 360 Checking balance will now appear as -$50 on our website, which reflects the $50 credit used from his Overdraft. He will then pay interest on the $50 he borrowed.
Can You Overdraft A Credit Card
Theres really no such thing as overdrafting a credit card.
This is because credit card issuers shouldnt approve a card transaction that puts you over your limit unless youve specifically consented to over-the-limit charges.
You also wouldnt usually use the term overdraft when it comes to spending more on your credit card than what you have in available credit with credit cards, this is usually known as going over your credit limit. Overdrafting is the term youd use if you spend more money than whats available in your checking account.
But its still possible to go over your credit card limit if youve opted into some sort of over-the-limit program with your card issuer. Heres what you should know.
What happens if I try to overdraft my credit card?
In most cases, if a purchase is going to push you over your credit limit, your card transaction will be declined and you wont have any additional fees or balance overages to deal with.
This is because of the Credit CARD Act of 2009. This law says card issuers cant charge you any over-the-limit fees unless youve specifically consented to transactions that will take you over your limit in advance.
Overlimit fees
Your card issuer may offer you the ability to go over your credit limit with programs known as over-the-limit coverage or protection plans. If you opt into this kind of program, your card issuer can authorize card transactions that exceed your limit.
Potential credit impact
Pay down the overage
How Many Days Can My Account Be Negative
Time Varies As a matter of policy, banks vary the time they take to close negative accounts based on the size of the overdraft and the banking history with the consumer. This is where banking loyalty works in your favor. Many typically wait 30 to 60 days before doing so, while others may wait four months.
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Please Read Before Enrolling In First Premier Bank’s Debit Card Overdraft Service
An overdraft occurs when you do not have enough money in your account to cover a transaction, but we pay it anyway. We can cover your overdrafts in two different ways:
1. We have standard overdraft practices that come with your account.
2. We also offer overdraft protection plans, such as a link to Lines of Credit, which may be less expensive than our standard overdraft practices. To learn more, ask us about these plans.
This notice explains our standard overdraft practices.
WHAT ARE THE STANDARD OVERDRAFT PRACTICES THAT COME WITH MY ACCOUNT?
We do authorize and pay overdrafts for the following types of transactions:
- Checks and other transactions made using your checking account number
- Automatic bill payments
We do not authorize and pay overdrafts for the following types of transactions unless you ask us to :
- ATM transactions
- Everyday debit card transactions
We pay overdrafts at our discretion, which means we do not guarantee that we will always authorize and pay any type of transaction. If we do not authorize and pay an overdraft, your transaction will be declined.
WHAT FEES WILL I BE CHARGED IF FIRST PREMIER BANK PAYS MY OVERDRAFT?
Under our standard overdraft practices:
- We will charge you a fee of up to $34 each time we pay an overdraft.
- Also, we will charge a continuous overdraft fee of $5 per business day.
- There is no limit on the total fees we can charge you for overdrawing your account.
- Overdrafts are payable upon demand.
Ask Your Bank For Alternatives To Overdraft Protection
Some banks and credit unions have alternatives to overdraft protection. For example, certain financial institutions will allow you to link your savings account to your checking account. When you overdraw your checking account, funds from your savings account will be transferred, providing similar service as overdraft protection.
Keep in mind, there will likely be a fee for this transaction, but it tends to be less than an overdraft fee.
Ask your bank or credit union about other overdraft protection options.
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What Happens When You Don’t Have Overdraft Protection
Without overdraft protection, your bank can still charge a non-sufficient funds fee that can be comparable to an overdraft fee if there isnt enough money in your account to cover the debit. In addition, the party receiving the bad check can demand reimbursement for the returned check fee and report you to ChexSystems, which is like a credit report for your banking history.
As of September 2019, the typical overdraft fee was $35 per item, according to a NerdWallet.com study. These fees can add up quickly if you make several transactions before you realize your account is in the red. If you are making a small purchaseor if you have another source of fundsdont write a check or use your debit card if youre even a little unsure whether your funds will cover the purchase.
Terms and conditions for overdraft fees vary significantly from one bank to another. If your banks overdraft fees are high, you may find it less expensive to pay using a credit card. This is different from linking your overdraft protection directly to a credit card, which can be pricey, because the credit card treats the linked transaction as a cash advance with a high interest rate and no grace period.
Switch To A Credit Card
Though credit cards come with their own challenges, , if used correctly. Especially now that overdraft interest rates are higher than many credit cards.
There are a variety of 0% credit cards available if you cant access a 0% overdraft. And weve even made them easier to find and compare, with our Lost Money feature in the Plum app
You can arrange a transfer from overdraft to credit card with a money transfer credit card. Youll have to pay about 3 to 4% of the amount youre transferring, but what you owe will move onto the card at 0% interest. These cards can offer 0% interest for up to 18 months
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Early Debits Of Scheduled Payments
Gym memberships, insurance payments, even medical bills can be scheduled for automatic payment from your bank account. You usually get to choose the date for the withdrawal. However, each of these payments can be claimed up to 4 days early! If you were counting on your mid-month paycheck, and a holiday is coming up, you can expect those draft payments to go through BEFORE your paycheck comes in. This, of course, can overdraw your account.
Does An Overdraft Affect Your Credit Score
An arranged overdraft is unlikely to have a major impact on your credit score as long as you donât go beyond your overdraft limit or have payments refused. In fact, if you use your overdraft sensibly and regularly pay it off it could improve your credit rating.
Thatâs because an overdraft will appear on your credit report as a debt. This means lenders will be able to see you have an overdraft, what your limit is and how much of your overdraft you are using. Holding the same current account for a number of years can also help your credit history mature, which can benefit credit scores.
If lenders can see that you stay within your agreed limit and regularly clear your overdraft, then it shows them you are a reliable borrower. This means you are more likely to be approved if you apply for another form of credit such as a credit card or mortgage.
However, your overdraft does affect your credit score if you arenât careful with it. If you regularly go beyond your overdraft limit it will damage your credit rating. Thatâs because it shows lenders you may be struggling financially.
Lenders also take your overall level of unsecured borrowing into consideration, so any overdraft debt you have is likely to be factored in to credit scores and lending decisions.
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What Happens If You Accidentally Overdraw On Your Credit Card
When you overdraw an account, you have essentially exceeded the balance of available funds in your account. In a banking situation, your bank account would be overdrawn until you deposited more money into the account, and your bank would charge you an overdraft fee for any items that were covered despite a negative balance in the account. If you overdraw a credit card account, it is commonly referred to as being over the limit. The consequences vary depending on your credit card company’s practices and procedures.
Pros And Cons Of Overdraft
Pros:
- They are offered as an addition to a current account you already have. So you wont be applying for a new product and, therefore, it should be quicker to arrange.
- They can be used to fund direct debits, standing orders and other non-card payments, as well as cash withdrawals.
- You dont have to make monthly repayments.
Cons:
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What Happens If My Credit Card Is Overdrawn
Most credit cards come with a credit limit, which is the maximum amount of money that can be owed in a billing cycle. Typically, your credit limit is determined by your issuer when you apply for the card, based on factors like your income, current debts and credit history.
You can use your card to make purchases up to your credit limit. For example, if you have a limit of $1000, you cant spend more than that on the card until your billing period resets.
Banks Communicate With Databases
Even if your overdraft isn’t reported to the credit bureaus, it may be reported to other banks, and this could prevent you from opening an account elsewhere. Banks regularly report to special databases that record only banking activity, not your whole credit profile. Your bank will probably report it if you overdraw your account and don’t set things right.
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Alternatives If Your Credit Limit Is Low
If you have a low credit limit or your credit limit recently got cut, you may wonder what you should do to avoid going over-limit.
If you’ve had a low credit limit for a while and currently have a stable job, you may want to request a credit limit increase. This can be a good idea if you have good credit or excellent credit or if you haven’t updated your income in a while and make more money than what’s listed. Take note, your card issuer may pull your during the request, which may cause a small, temporary ding to your credit score.
On the other hand, if your credit limit was reduced, you may want to consider other options. Cardholders with good payment history and a stable job should call their card issuer and ask for reconsideration, Harzog says. When you call, ask why your credit limit was cut, explain that your account is in good standing and that you have a stable source of income to pay off your bill. This may shed light on why your limit was lowered and potentially result in your credit limit increasing though there is no guarantee.
Meanwhile, cardholders with a history of missed payments or maxing out their card shouldn’t call for reconsideration since it’s probably not a good idea to draw attention to yourself, Harzog says.
Instead of asking for a credit limit increase on the card that had a reduction, these cardholders may want to consider any other cards they have.
Learn what to do if you didn’t get the credit limit you wanted.
We Wont Charge You A Fee But It Can Still Work Against You
For starters, being over the limit could mean we decline any new transactions. This might include automatic payments or direct debts, like gym memberships or online streaming subscriptions.
The sooner you pay off your credit card, the sooner the balance is brought back under the limit and you can start using it again.
Read how to manage your credit card’s credit limit.
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Does An Overdraft Appear On My Credit Report
An overdraft will appear on your credit report as a debt. If you donât use your overdraft it will show a zero balance. Anyone who is in their overdraft will see the amount they owe on their credit report.
If you only dip into your overdraft occasionally and it gets cleared at the end of the month when you get paid, your overdraft use may not appear on your credit report. Thatâs because most banks and building societies only send information to the credit reference agencies once a month. This tends to be what your bank account looks like on that specific day so there is a chance it could miss temporary use of your overdraft.
However, if you have used an unauthorised overdraft or incurred charges for not paying off your overdraft that will appear on your credit report. Find out more about how late payments can affect your credit score.
The Pros Of Overdraft Protection
Overdraft protection provides some benefits:
- Your transaction will still clear even if you dont have enough money in your bank account, helping to expedite transactions when youre in a hurry, such as at a gas station or drive-thru. It could save you from embarrassment, too.
- The cost is usually substantially less than paying an overdraft fee.
- It may allow checks to clear, which in turn can help you avoid returned check fees from merchants.
- It can provide access to funds in times of emergency.
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Beware Your Bank Overdraft Could Be Taken Away
One reason that an overdraft isnt safe for long-term borrowing is that its not guaranteed. The bank could take it away at any time.
But if your bank cancels your overdraft with no warning and you are charged as a result, you might have grounds to complain.
If you complain to your bank and you arent satisfied with the outcome, you can take your complaint to the Financial Ombudsman Service.
Allow Overdrafts Vs Not Allowing Overdrafts
Your bank will give you the option to allow overdrafts. There are benefits and penalties for overdraft protection:
Allowing Overdrafts
- You pay a $35 overdraft fee per transaction
- Your checking account balance can go into the red
- You dont have to pay retailers a returned check fee
- You avoid late fees for bills you have paid, because the bank covered them
Not Allowing Overdrafts
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A Minor Inconvenience That’s Easily Resolved
There are several ways an overpayment on a credit card can happen, but fortunately — unlike more serious — it normally isn’t a big deal. You’ll end up with a spending credit you can either use or get as a refund.
While you won’t have any problems because of an overpaid credit card, keep in mind that there’s also no good reason to leave your card that way. It doesn’t help your credit score, and there are no advantages for you. If you have any doubt that you’ll use the credit balance within a month, you should go ahead and get your money refunded.
What Type Of Borrowing Is A Credit Card Suitable For
A credit card can be suitable for spending that you want to pay back gradually. It is typically expected to be used for discretionary big ticket purchases.
However, many people use their card for everyday spending too and pay off the balance in full each month.
It is also possible to transfer what you owe from one credit card to another known as a balance transfer. This allows you to benefit from a lower or even zero rate of interest for a while to help you get your finances under control.
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How Long Can Bank Account Be Overdrawn
In most cases you have 5 business days or 7 calendar days to fix your balance before the extended overdraft fee takes your account even deeper into the red. Some banks charge this fee once every 5 days, while others go so far as to assess the fee every day until you bring your balance back above zero.
How Do You Pay Back An Overdraft
Consider a money transfer card: Another option you might want to consider especially if you have a bigger overdraft is a 0% money transfer card. With this type of card, you can move funds from your credit card into your current account, and then use the cash to pay off your overdraft interest-free.
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