Though check use across the United States is on the decline, some of us still whip out our trusty checkbook to pay bills, give monetary gifts, or satisfy loan and mortgage obligations, among other things.
When all goes well, the check is cashed and life moves on. Unfortunately, if you don’t have adequate funds in your account when the check is cashed, it will bounce.
If that happens, you may need to free up some cash to meet your obligations, and you’ll likely incur a fee or two, but is that where the damage ends? Or do bounced checks affect credit?
The short answer is no; your bank won’t alert the major credit bureaus (Equifax, TransUnion, and Experian) to a bounced check. And, while a single bounced check may not necessarily be cause for concern, if you don’t address the issue quickly, or if it becomes a habit, you may find that a bounced check can indirectly affect your credit.
Does a Bounced Check Hurt Your Credit Score?
You may consider your finances to include things like your checking, savings, or investment accounts, but that’s not the case when it comes to major credit bureaus. Instead, their main concern is to determine your risk level when it comes to borrowing and credit obligations. This means that the information on your credit report is limited to debts like those associated with credit cards, auto loans, personal loans, student loans, mortgages, and home equity loans.
Similarly, assuming you’re in relatively good standing, your bank typically isn’t interested in reporting your account information, and that includes an occasional bounced check.
When Bounced Checks Can Hurt Your Credit Score
If you bounce a check and take care of it quickly, your credit score will go unharmed. However, if you don’t address it, then this monetary mishap can find its way to your credit report. Say, for example, you use a check to make your car payment. The check bounces, and now you need to reimburse the bank and still make your car payment.
>> Read More: What Affects Your Credit Score?
Let’s assume that you’ve managed to quickly repay or otherwise shuffle funds to appease your bank, but you fail to settle up with the lender and miss a payment. These things happen from time to time, but if you tend to your account within 30 days, you can typically escape any sort of negative credit effects. However, if you fail to address the issue, the lender may report your account to one of the credit bureaus, which will likely result in a lower credit score.
Assume you didn’t miss your due date, or, if you did, you brought your account up to date within 30 days. Your credit score still may not be completely safe from harm. If you fail to rectify the situation with your bank, they reserve the right to either send your account to collections or sue you to recoup the funds.
>> Read More: Getting Collections Removed From Your Credit Report
In the event that your account is sent to collections—and that collections company reports to the major credit reporting bureaus—then your bounced check can take a toll on your credit score. And, while missed payments do reflect poorly on your credit, an account in collections can wreak even more havoc.
Bounced checks happen. But as long as you quickly meet your credit and banking obligations, they typically won’t have an impact on your credit. Unfortunately, if you fail to settle up in a timely fashion, be it with the bank or the creditor or lender, things can quickly take a turn for the worse, and that single bounced check can find a way to your credit report and drag your score down.