The main consequence of a credit card overdraft is the money it costs the credit card account holder. Credit card overdraft fees can add up and make it more difficult for a person to manage his credit card payments or even have extra cash to spend as he wishes. If credit card overdrafts cause a person to pay his bill late or keep his balance too close to his credit limit, they may also hurt his credit score. In some cases, credit card overdrafts can even contribute to a creditor’s decision to close an account holder's account or raise his interest rates.
The most obvious consequence of a credit card overdraft is an overdraft fee. This occurs when the charges to a person’s credit card exceed the amount he has as available credit. When this happens, a person’s creditor usually has the right to charge an overdraft fee. The amount of the fee varies from creditor to creditor but is often a significant amount of money.
In most cases, a person who is charged an overdraft fee can simply pay it, and that may put an end to his credit card overdraft consequences. Sometimes, however, a debtor is unable or unwilling to pay an overdraft fee by the date on his bill. If he waits too long, his bill payment may be late, and the debtor's credit score may suffer. For example, if an overdraft fee makes it difficult for a person to pay his bill, he may put it off. If he ends up being 30 days late or more, this may result in a negative mark on his credit report.
Sometimes credit card companies choose to close accounts because of past patterns of behavior. For example, if a person frequently has credit card overdrafts, a creditor may begin to consider him too much of a risk and close his account. Even if a credit card company does not decide to close an account holder's account for this reason, it may sometimes raise his interest rates. In such a case, the account holder can still use the credit card to make payments but has to pay more to enjoy purchasing products and services on credit.
A rare credit card overdraft may not hurt a person's credit score, but frequent episodes can have a negative effect on one’s credit. A person who has frequent overdrafts often has a credit balance that is close to his limit, even after he has paid his overdraft fees. Generally, having credit balances that are too close to the limit lowers a person’s credit score.