A bounced check might not directly impact your credit report.
Sometimes mistakes happen and you spend more money than you have deposited in your account. When you do not have sufficient funds to cover the amount of a check, it is referred to as a bounced check. Some banks will return the check without paying the amount while others will cover the amount of the check but charge a non-sufficient funds transaction fee. While this type of mistake can be costly, it does not directly impact your credit score as long as the debt is reconciled within a reasonable time frame, which is generally about 90 days.
Collection Agencies
If a check bounces and you do not promptly pay, the outstanding balance may be turned over to a collection agency. The collection agency will attempt to collect the funds and reconcile the account. However, if the collection agency is unable to collect the money, it will report the amount to credit bureaus and it will show up as a negative account on your credit report. Therefore, it is best to ensure that all bounced checks are quickly paid in full to avoid collection agencies.
Consumer Information Agencies
In some instances, a bounced check will be reported to consumer information agencies, which track consumer credit and spending history but do not supply credit scores like credit reporting agencies. These agencies often provide information about your credit and payment history to loan companies, car dealers, vehicle finance companies, utility companies and insurance agencies. Presenting a history of bouncing checks can increase the interest rate on loans or down payments required of you.
Legal Penalties
Many states have legal penalties associated with bounced checks, whether civil or criminal. While they won't show up on your credit report, a criminal penalty will show up on your criminal history report and can be very costly. In a civil penalty, the person writing the bad check can be forced to repay the amount of the check plus damages, which is often a substantial amount of additional money. In criminal cases, the individual writing a bad check can be prosecuted or arrested if it can be shown that the check was intentionally fraudulent. The laws for both criminal and civil legal issues vary by state and can be reviewed through the National Check Fraud Center. In both instances, court and attorney fees may also be assessed to the overall payment.
Check Diversion Companies
A check diversion company is a private, for-profit company that collects funds for bad checks. According to the National Consumer Law Center, these companies are known for charging excessive collection fees, making false implications and failing to give consumers the proper amount of time to pay or challenge the debt. When dealing with such companies, understand your rights under the Fair Debt Collection Practices Act, which was passed in 2006, particularly if the company threatens you with severe penalties for not paying the debt. However, if the debt is legitimate and the price is accurate, it is best to reconcile the amount before it is reported to a credit bureau.
Avoiding a Bounced Check
One of the best ways to avoid bouncing a check is to regularly balance your checkbook. This is particularly important in the age of debit cards and electronic transactions where it is easy to lose sight of transactions if not closely monitored. Another option is to sign up for overdraft protection, which can link your checking and savings account together in the event of an overdraft. Some overdraft protection plans also allow your account to remain in a negative balance until a deposit can be made, but substantial fees are often associated with each transaction into the negative.
