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Sometimes you might have a check that cannot be cashed at the bank. Such checks are referred to as bounced checks. If a check bounces, it can leave you with many uncertainties.
One of the things that people think about when they have a bounced check is credit score. Will it be badly affected?
Your credit score usually measures how you handle credit, including mortgage, student loans, car loans, credit cards, and so on.
Your credit score is used to assess whether you will be able to repay your loans. Some people think that they will not get a loan at a friendly interest rate simply because they have presented a bounced check.
However, this isn’t true. A bounced check does not impact your credit score directly. Why? Because banks and other financial institutions do not give information regarding bounced checks to credit bureaus. Your credit score will remain as it was before presenting a bounced check to your bank.
However, a bounced check can actually affect your financial standing. This can, in turn, hurt your credit score in other ways. These include:
1. The Bank Can Report You to the Chexsystems
Banks have the option of reporting bounced checks to Chexsystems. Chexsystems is basically a consumer reporting agency for banking activity. As such, this agency helps banks identify rogue customers who are a risk to the banks.
Mostly, this agency usually looks at the history of how these culprits have mishandled their bank accounts in the recent past. If your check bounces frequently or due to a forging and other serious reasons, you might fall under this category and you might be blacklisted for five years.
To find out where you are on the Chexsystems list, order a complimentary consumer disclosure report from Chexsystems. Just like a normal credit report, you can dispute any information you feel is not right.
2. Merchants
Merchants might not accept checks from people who have written too many bounced checks. They won’t trust that they can provide proper checks. In most cases, merchants or business owners use a verification system known as TeleCheck to tell whether a customer’s check is genuine or not.
If they have issues with your check, the merchants will not accept your check. As such, you will be required to pay using other methods such as cash or credit cards.
3. Legal Risks.
You will rarely be jailed for presenting a bounced check. If this were the case, many people would be in jail by now. However, if it is revealed that you knowingly wrote a bounced check, the bank or the person receiving the check can take legal action against you. Serious action might be taken against you if you fail to cover your bad check and the bank’s overdraft fee.
It is against the law to write bad checks, and it is regarded as a felony in many states. As such, you might end up getting jailed in the long run.
4. Your Credit Score Might be at Risk
A bounced check can affect your credit score indirectly.
For instance, if you use a bad check to make payment to a company that reports your payment history to the credit agencies. Some of the payments that get reported include mortgage and student loan payments.
In this case, it will reflect as if you made your payment late and not appear as a bounced check. If you correct this mistake on time, your credit score will not be affected. If not, your account will be sent to collections agencies who will forward your information to the credit bureaus.
This will negatively impact your credit score. Sometimes, legal action can be taken against you, and this can have serious repercussions.
Final Thoughts
If you already have a bounced check, you should make things right as soon as possible, usually within 30 days. Contact the payee immediately and pay what you owe. Avoid bouncing checks by all means as it can lead to huge losses on top of damaging your credit score.
Be sure to check your checking account balance to avoid the likelihood of a bouncing check. To ensure you have proper checks, get them from a genuine supplier.
Owning and operating a business requires hard work. You need to use every opportunity available to get the name of your business out there.
One way to advertise your business is to use checks with a full color company logo. The color logo is an excellent way to make your business checks attractive, which is what you need, especially if you’re just getting started. This makes your business checks reflect your business as well as your brand.
Disclaimer: This content does not necessarily represent the views of IWB.