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Overdraft Protection Line of Credit

An overdraft protection line of credit can mean the difference between financial catastrophe and survival for a person or business with a checking account.

The overdraft protection line of credit kicks in whenever there isn’t enough money in a checking account to cover a check or payment. Under such an arrangement the bank covers the payment but the account holder has to pay it back later with interest.

This arrangement is a really good deal for a checking account holder because it keeps the account open. It also prevents overdraft fees which can quickly eat up all of the money available in a checking account. 

How to Get an Overdraft Protection Line of Credit

The way to get an overdraft protection line of credit is simple: ask for one when you open a checking account. If you have an existing checking ask your bank to give you an overdraft protection line of credit. If your bank doesn’t give you an overdraft protection line of credit find another bank.

Most banks will give overdraft protection lines of credit to consumers with good credit ratings. In many cases the consumer will have to open a Visa or MasterCard credit card issued by the bank.  It is definitely worth it to get this protection. Paying back the credit card balance will be far cheaper than paying the overdraft fees.

Businesses will also be able to get an overdraft protection line of credit if they get a business credit card. Some banks will also give a business cash line of credit that protects the checking account from overdrafts to any business that runs a lot of cash through their accounts. The way for a business to get this kind of protection is to ask for it.

Benefits of Overdraft Protection Lines of Credit

Everyone who has a checking account needs an overdraft protection line of credit because any checking account can quickly become overdrawn. Banking errors, mistakes on your part, fast electronic payments and identity theft can quickly clean out your checking account.

The minute the checking account is empty and checks start coming in the bank will start charging overdraft fees on it. These can be between $20 and $100 and they quickly add up. It is possible for several hundred dollars worth of overdraft fees to be assessed on an account in a few hours or days.

A good way to think of an overdraft protection line of credit is an insurance policy that prevents this catastrophe. Yes, the depositor has to pay the credit charges back with interest but they will always be far cheaper than the overdraft fees.

Another reason for overdraft protection is that it prevents the bank account from being frozen or shut down because of overdrafts. This can prevent a person from using their account and ruin your credit rating. Overdrawn banks will be reported to credit bureaus which can give a person a bad credit rating.

The Overdraft Protection You Don’t Want

There is a kind of overdraft protection a depositor should not get. Many banks will try to get a person who has a checking account and a savings or money market account to sign up for an overdraft protection utilizing the savings. This arrangement allows the bank to use the depositors’ savings to cover checks.

A depositor shouldn’t sign up for this deal because it can allow the bank to clean out the savings account with overdraft fees. It can also give an identity thief who gets access to your checking access to your savings. Don’t get this kind of overdraft protection, get an overdraft protection line of credit instead.