How Bounced Checks Affect Your Credit Score
Bouncing a check can cause several problems, and your credit score is one area of potential trouble. The good news is that if it’s a rare occurrence, your credit will probably come out fine—as long as you fix the problem quickly.
A bounced check does not immediately show up in your standard credit reports, and it might not ever show up. The major credit reporting bureaus (Experian, TransUnion, and Equifax) mainly deal with information about loans—lenders you borrow from, if you pay on time or late, and if there are any public records related to your borrowing history.
Your bank does not report every single check to traditional credit bureaus.
If you bounce a check, pay whoever you owe quickly and put it behind you. As long as you deal with the problem within about 30 days—and avoid making a habit out of it—your FICO credit scores should not suffer. That said, a bad check (or a series of bad checks) can eventually lead to trouble in several ways:
- “Alternative” credit scoring models might give you lower scores.
- Unpaid checks that end up in collections will likely go on your credit report and can hurt your traditional credit scores.
- A late debt payment to a lender will hurt your credit after 30 days.
- You might end up in other databases, besides traditional credit bureaus.
The FICO credit score is the most popular credit score, and lenders most often use that score for big loans like auto and home purchases. Other scores, like VantageScores, are also popular. However, alternative scores are increasingly useful for people who have never had the chance to build credit and for those who are rebuilding after financial difficulties.
Alternative credit scores look at more than just your borrowing history. Utility payments and rent payments can show that you’re able to make payments consistently, even if you’ve never borrowed in the past. But if your rent and utility payments bounce, you won’t score as well on those scoring models.
Eventually, a bad check can show up on your standard credit report at the three major credit bureaus. If a bill goes unpaid, your account may eventually be sent to collections. In other words, the creditor hires a collection agency or sells your debt to them, so the collection agency attempts to collect what you owe.
Collection agencies will report your debt to the credit bureaus, and those entries will hurt your credit. The collection agency might also bring legal action against you, and any successful judgments against you will lower your scores.
Straightening Things Out Within 30 Days Is Essential
If you bounce a check, contact the payee immediately and pay what you owe—don’t wait for them to call you. Especially if you were making a payment for a loan (like your home loan or credit card), it’s essential to straighten things out within 30 days.
Late payments on loans appear on your credit report and they drag down your credit scores. However, you often have 30 days after the due date to make your payment and keep your credit intact.
You may still pay fees for a bounced check and a late payment, but you can avoid damage to your credit by acting fast.
Other Credit Reports
The most popular credit reporting agencies, which are often used for loan and job applications, do not track your checking account activity. However, there are other “consumer reporting companies” that gather and sell information about you. One of those is ChexSystems, which tracks bounced checks and insufficient funds.
In contrast to the major credit reporting agencies, it’s a bad thing if you have a ChexSystems report: Only people who’ve had problems with their bank show up in that database. Based on information about your past, banks might refuse to open a checking account for you, or they might close an existing account.
Other databases can also make it hard for you to use your checks. For example, you might not be able to pay by check at a store if the merchant uses a check verification service to screen for bad checks.
Avoid Bouncing Checks
There are numerous reasons to avoid bouncing checks. In addition to potential damage to your credit, you pay extra fees, and you might even wind up with legal troubles. Keep track of how much money you have available in your checking account, and make sure you never go below zero.
Bouncing the occasional check might be a sign that you’re busy or distracted. But if it happens regularly, it’s a sign that you need to make changes and get back on solid ground.
- Get balanced. To track your account balance, learn how to balance your checkbook. You’ll know (before your bank does) where all of your money is going.
- Get alerts. Sign up for text or email alerts so that you know how much you have in your account, and when any money leaves the account. This allows you to take action before problems arise.
- Get protected. If you’re still bouncing checks, look into overdraft protection from your bank or credit union. The bank will (sometimes) pay when you run low on money, and you repay what you owe to the bank instead of bouncing a check. This service costs money, so learn about the pros and cons before you sign up.