Some time ago we asked What Costs More–A Bounced Check, Credit Card Late Payment Penalty or Payday Loan? Earlier this week, a reader left a comment on the article asking whether a bounced check could affect your credit rating. Since most of us have probably bounced a check before, I thought it was a good question to share with you.
The short answer is that a bounced check in and off itself does not affect your FICO credit score. Your credit score measures how you handle credit. Whether it’s a mortgage, student loan, car loan, credit cards, or other forms of credit, FICO credit scores attempt to assess the likelihood you will repay borrowed money. In contrast, a checking account holds money you’ve deposited into the account. It’s not a credit account.
But that’s not the end of the story. First, because a checking account is not a credit account, it can’t help you build your credit, either. While building your credit is important, a bank account won’t help you no matter how responsible you are with the account.
Second, bouncing checks may prevent your from opening a checking account. Banks use what is called the Chexsystems. Similar to a FICO credit score, Chexsystems tracks how bank account holders manage their accounts. Bounce too many checks, and your current bank may close your account and other banks may turn you down when you try to open a new checking account. If that’s happen to you, by the way, avoid check cashing stores at all cost. They are expensive, inconvenient, and potentially unsafe. A low cost prepaid card is a much better option.
Finally, if the bounced check was a payment on a credit card or other credit account, failure to make the payment can of course hurt your credit score. If you make the payment as soon as you realize your check bounced, you’re probably fine. But let the payment go, and the late payment will eventually show up on your credit score.