Does a Bounced Check Affect Credit?

A bounced check is a check that your bank returns to the recipient when your account does not have enough funds to cover the amount for which it is written. Virtually all banks charge fees for bounced checks, and you may also face late fees and returned-check charges if you wrote the check to pay a bill. Bounced checks also can affect your credit rating and make it difficult to obtain loans and new bank accounts.

Credit Reports

Your credit reports from the Experian, Equifax and TransUnion reporting agencies contain information about credit-related accounts such as loans, general credit cards and retailer-specific accounts. The agencies do not report checking account activity, but they do put collection agency activity in your files. Some retailers and other companies hire debt collectors if you do not reimburse them for bounced checks. Collection agency entries are visible on your credit reports for seven years, and lenders may look unfavorably on such entries when evaluating your credit applications. Bankrate columnist Steve Bucci warns that court judgments are also added to your reports when collection agencies successfully sue you.

Traditional Credit Score

Your three-digit credit score is calculated based on information in your credit reports, so collection activity related to bounced checks reduces your credit score. The MyFICO scoring information website explains that 35 percent of the score is based on payment information, including collection agency accounts, so returned checks being pursued by debt collectors can hurt your score significantly.

Alternative Credit Score

Bounced checks directly affect your FICO Expansion Score, an alternate credit score created by Fair Isaac Corporation, developer of the original scoring model. The Expansion Score is an alternative score for people without a traditional credit rating, based on information from rent-to-own furniture and electronics stores and high-risk lenders such as payday loan companies, according to MSN Money writer Liz Pulliam Weston. This score also incorporates data from firms that track people who write returned checks. Normally, such firms create blacklists for bank use, which only affects your ability to get new checking accounts. The bounced checks hurt your ability to get credit accounts with lenders that use the Expansion Score.

Considerations

A bounced check may affect your credit in an indirect way if it was sent as payment for a loan or credit card and caused you to miss the deadline. The creditor usually imposes a late payment fee, and your account is marked delinquent and reported as such to the credit bureaus. This falls under the payment information section of your credit score, and it continues to hurt you every month you let the delinquency persist. The effect stops when you bring your account current, but that does not erase the prior delinquency.