Image credit: C. Fish Images / Shutterstock.com
Sometimes you can have a check that cannot be cashed in the bank. These checks are called checks without funds. If a check bounces, you can leave it with many uncertainties.
One of the things that people think about when they have a check without funds is the credit score. Will it be severely affected?
Your credit score generally measures how you handle credit, including mortgages, student loans, car loans, credit cards, etc.
Your credit score is used to assess whether you can pay your loans. Some people think they will not get a loan at a friendly interest rate simply because they have submitted a check without funds.
However, this is not true. A declined check does not affect your credit score directly. Why? Because banks and other financial institutions do not provide information about checks without funds to credit bureaus. Your credit score will remain as it was before submitting a check without funds to your bank.
However, a declined check may actually affect your financial situation. This, in turn, can damage your credit score in other ways. These include:
1. The Bank can inform Chexsystems
Banks have the option to report checks without funds to Chexsystems. Chexsystems is basically a consumer reporting agency for banking activity. As such, this agency helps banks identify dishonest clients that are a risk to banks.
For the most part, this agency generally analyzes the history of how these culprits have mishandled their bank accounts in the recent past. If your check bounces frequently or due to a forgery and other serious reasons, you may belong to this category and be blacklisted for five years.
To know where you are in the Chexsystems List, request a free consumer disclosure report from Chexsystems. Like a normal credit report, you can dispute any information that you believe is not correct.
Merchants may not accept checks from people who have issued too many checks without funds. They will not trust that they can provide adequate controls. In most cases, merchants or business owners use a verification system known as TeleCheck to determine whether a customer's check is genuine or not.
If you have problems with your check, merchants will not accept your check. As such, you will be asked to pay using other methods, such as cash or credit cards.
3. Legal risks.
You will rarely be jailed for submitting a check without funds. If this were the case, many people would be in jail now. However, if it is revealed that you knowingly issued a check without funds, the bank or the person receiving it can take legal action against you. Serious action can be taken against you if you do not cover your check without funds and the bank's overdraft fee.
It is against the law to issue checks without funds, and is considered a felony in many states. As such, you could end up incarcerated in the long run.
4. Your credit score could be at risk
A declined check may affect your credit score indirectly.
For example, if you use a check with no funds to make the payment to a company that reports its payment history to the credit bureaus. Some of the payments reported include mortgage payments and student loans.
In this case, it will be reflected as if you made your payment late and does not appear as a check without funds. If you correct this error on time, your credit score will not be affected. Otherwise, your account will be sent to the collection agencies that will send your information to the credit bureaus.
This will have a negative impact on your credit score. Sometimes, legal action can be taken against you and this can have serious repercussions.
If you already have a declined check, you must correct things as soon as possible, usually within 30 days. Contact the beneficiary immediately and pay what you owe. Avoid checks without funds, as it can cause large losses in addition to damaging your credit score.
Be sure to check your checking account balance to avoid the possibility of a check without funds. To make sure you have the right controls, get them from a genuine provider.
Owning and operating a business requires a lot of work. You must take advantage of all the opportunities available to obtain your company's name.
One way to advertise your business is to use checks with a full color company logo. The color logo is a great way to make your business checks attractive, which is what you need, especially if you are just getting started. This makes your business checks reflect both your business and your brand.
Disclaimer: This content does not necessarily represent the views of IWB.