Does a Returned Check Affect Your Credit Score?

These days, when the criteria for opening new credit accounts is stricter than ever, it's important to pay attention to your credit score. Carefully monitoring your score and paying your bills each month is one way to keep your score high, but sometimes things go wrong. Whether due to an accounting error, a forgotten transaction or a later-than-expected paycheck, an overdrawn checking account can have consequences for your financial picture--and if not addressed quickly, it can affect your overall credit picture.

Bank Fees

In general, if you "bounce" a check, or it is returned because there isn't enough money in your account to cover the amount, your credit report and score are not affected. In most cases, the bank will notify you of the returned check, charge a fee and request that you add money to the account to cover the amount of the check, if they paid it. If the bank opted to overdraft your account and pay the check, you will not face any consequences from the recipient of the check.

Creditor Fees

If you wrote a check to a creditor, such as a credit card company, and the bank returns the check unpaid, your credit score may take a hit. Writing a bad check to the creditor leads to returned check fees, and if you cannot make good on the payment before the due date, a late fee as well. The late payment may also be reported to the credit bureaus, and your balance, instead of being reduced by your payment, is increased by the added fees. This changes your debt-to-income ratio slightly, and your amount of available credit, which can affect your credit score.

Collection Accounts

When you create an overdraft on your account, in effect the bank becomes a creditor and you have to pay the money back. Depending on your bank's policies, the overdraft fee may be a one-time fee or a daily fee for as long as your account remains overdrawn. If you do not repay the balance, the bank may send the account to collections. Collection accounts do appear on your credit report and reduce your credit score. To avoid a bounced check from hurting your credit, pay any overdrafts as soon as possible, or add overdraft protection on your checking account.

Expansion Credit Score

Many retailers and banks report returned checks to national databases, such as ChexSystems, which keep track of how you use your checking accounts. If you demonstrate a pattern of bouncing checks over a period of time, you may find that you cannot open new bank accounts, or even write checks to retailers that run a check of the database before accepting your check payment. In addition to making it more difficult to write checks, if you do not have an extensive credit history, lenders may look at your FICO Expansion score, which does consider returned checks. Fair Isaac, the creator of the formula that determines credit scores, developed the FICO Expansion score to assess your checking account history and accounts with nontraditional lenders, such as payday lenders and rent-to-own companies. A pattern of returned checks lowers your FICO Expansion score, hindering your ability to get new credit.