For many people in this economy, it can be a challenge just to make ends meet. This has forced a greater and greater percentage of people to live paycheck-to-paycheck. This type of situation is particularly difficult because it leaves these individuals – and their families – with no room for error. A missed paycheck, a cutback in hours, or an unexpected layoff can result in financial collapse. Moreover, because these people often find themselves without enough funds to cover their monthly “nut,” they resort to writing checks that may not clear. While this might seem justifiable within the context of this financial calamity, it is not. In fact, bouncing a check can quickly turn your situation from bad to worse.
Let’s start with the basics. Bouncing a check refers to a situation where an individual or entity writes a check without possessing the necessary means within that checking account to cover the balance. Typically, the most immediate consequence of bouncing a check is that your bank will charge you an overdraft fee. Additionally, you will also likely be charged a fee by the entity which was unable to collect the intended funds. Together, these two fees for one bad check can sink you further and further into debt.
It should be noted, however, that some banks actually allow these funds to clear even if there are not sufficient funds in your account. In effect, this operates as a high-interest loan. While this may enable you to avoid the sting of overdraft fees, it is important to pay this loan down as quickly as possible to avoid even more detrimental repercussions.
Damage to Credit Score
A bounced check does not disappear after it has been disseminated. In fact, the recipient can use it as the basis by which to file an insolvency report. Debt collectors and collections agencies can then be contacted to settle this and any other outstanding debts that you may also owe.
Moreover, these collectors can directly and detrimentally affect your credit score; and thereby reduce your ability to borrow money at some point in the future. Additionally, you can do damage to your credit score indirectly if the aggrieved party reports you to one of the credit ratings agencies.
Another method for reporting fraudulent debtors is to file a complaint with a bad-check registry. If any crediting agency does a background check on your financial history, it will be easy to discover your past of bouncing checks through these registries.
Reduced Personal Standing
The more harm you do to your credit through bounced checks, the more likely you are to face difficult challenges down-the-road. Besides debt collectors, the police can be called in order to deal with any “fraudulent” (or bad) checks. If you write a check for an excessive amount, it is considered fraud and you can be charged with a felony. Additionally, banks may not be willing to offer you a checking account if you have a record of bounced checks. Furthermore, this can severely limit your ability to get a job, accumulate steady income, or function as a regular member of society. These are the most drastic outcomes, but they serve as important reminders of what can happen when you bounce a check.