When a check bounces, it does not impact your credit score directly. This is because banks do not report bounced checks to major credit bureaus such as Equifax, Experian, or TransUnion. Therefore, a returned check marked “insufficient funds” will not appear on your credit report and will not have a negative effect on your credit score.
Nevertheless, bouncing a check can have adverse consequences on your financial status, which may eventually impact your credit score in various ways.
A Bad Mark With the Banks
Banks have the authority to report bounced checks to ChexSystems, a consumer reporting agency that focuses on banking activity. By identifying customers who pose a risk due to mishandling of their accounts, ChexSystems assists banks in managing potential risks. Bouncing a check falls within this category of risk.
If your bank reports you to ChexSystems, the negative mark can stay on your record for up to five years, which might hinder you from opening a new bank account during that period.
You have the right to request a complimentary ChexSystems consumer disclosure report to check for any negative information about you. Under the federal Fair Credit Reporting Act (FCRA), you are entitled to one free report every 12 months. Instructions on how to request your report can be found on the ChexSystems website.
Similar to a credit report, if you believe any information to be inaccurate, you can dispute it. You may also have the opportunity to provide a statement for your file to present your side of the dispute.
Another Bad Mark, With Merchants
Frequent bouncing of checks may lead to difficulties in paying merchants through checks in the future.
Many merchants utilize a verification system known as TeleCheck to assess the validity of a customer’s check. If this system links the check you are presenting to a past of unpaid checks, the merchant will likely reject your payment via check and request an alternative form of payment.
The Potential Risks to Your Credit Score
Indirectly, a bounced check can impact your credit score if it was used to make a payment to a company that regularly reports payment history to credit agencies, such as mortgage lenders, student loan providers, and credit card companies.
In such instances, the bounced check will manifest on your credit report as a late payment, not specifically as a bounced check. Resolving the issue within a month of the due date can prevent any negative impact on your credit score.
If you rectify the bounced check within 30 days, the creditor typically will not report your account as past due.
Moreover, failing to cover a bounced check adequately could lead to legal actions from the bank, potentially involving a lawsuit or sending your account to a collection agency. Subsequently, the collection agency might report the unpaid debt to credit bureaus, resulting in credit score damage. By promptly depositing sufficient funds to cover the check, you can prevent your account from going into collections and safeguard your credit score.
The Legal Risks of Writing Bad Checks
While writing an occasional bounced check typically will not lead to imprisonment, deliberately writing bad checks without the funds to cover them can have severe consequences.
The severity of repercussions for writing bad checks varies by state, ranging from misdemeanors to felonies based on the check’s amount. In either scenario, individuals may face penalties, including fines, jail time, or both.
