Does Cashing a Bad Check Affect Your Credit Score?

It may not be as embarrassing as actually writing a bad check, but cashing a bad check may cause headaches, especially when the original check writer fails to make good on the draft. In most states, the person who cashes the check is responsible for it, and depending on the severity of the situation, the person who cashed a bad check could end up with a debt judgment that appears on his credit record.

Responsible Parties

Although the laws of each state differ, most states, with minor variation, adhere to the model uniform commercial code. The UCC, in general, assigns responsibility for a negotiable instrument to each person who is a "holder in due course" -- that is, a person who is entitled to the proceeds of the instrument. When a person writes a check to another person, and the recipient intends to cash it, the organization that negotiates the check can only take action on the person who cashed it. It's up to the person who cashed it to take action against the check's maker.

Restricted Endorsements

The UCC grants exceptions for "restricted endorsements" -- that is, a condition that is applied above the signature of the person endorsing (or signing) the back of the check. For example, if a person wrote "without recourse" above his signature, the person who cashed the check is legally barred from taking action against the person who signed it. Most banks and commercial check-cashing establishments will not cash a check with a restricted endorsement.

Normal Recourse Scenario

If Bob wrote Sally a personal check for $200, and Sally had it cashed at the service counter of her local supermarket, then the supermarket will contact Sally if Bob's check bounces. The market will not contact Bob. Sally will have to reimburse the supermarket for its loss -- including any applicable fees -- and then Sally will need to be reimbursed by Bob for her loss. She could also refer the matter to the local prosecutor.

Potential Consequences

If a person is unable to make good on the bad check that she cashed, the bank or company that negotiated the check can either sue her or send her to collections. In this case, a derogatory record will appear on her credit report -- either the collection account or a civil judgment. At this point, the person who cashed the bad check has a credit hit. However, it takes months before a bad-check dispute would get to this level, so if the person who cashed the check is diligent about making good on the bad check, she usually can avoid a negative credit record.

Check Acceptance

People with unresolved bad checks, whether they cashed them or wrote them, could be listed in check acceptance databases like Chexsystems and find that they cannot write or cash checks with certain retailers until the negative record is cleared up. This is technically not a credit record, but placement on a national bad-check registry can affect a person's ability to pay with a check for future transactions.