Does writing NSF checks affect your credit rating?
Do you know what NSF means? NSF is a banking industry abbreviation for “insufficient funds.” If you write checks without having the money in your checking account to balance the checks you write, your checks will be NSF.
NSF checks may not be bounced checks. The bank may pay them then hit you with some pretty substantial fees. If the bank doesn’t extend you credit to cover your checks, however, they will bounce and the payee you wrote the check to won’t get paid. When a check goes bad, that can end up with your check being put into collections. If it goes into collections, it will be reported to the credit bureaus. That will, obviously, affect your credit score. It won’t affect it in a positive way, either.
There are other dangers. Your bank may revoke your checking privileges and close your account. A collection placed against you can convince other banks to refuse to extend a checking account to you.
Banks don’t like it when you write bad checks. You will be immensely unpopular with other financial institutions as well. The high fees they charge you are meant to discourage you from writing bad checks. When they cover your negative balance with a short-term line of credit, they typically call it an overdraft protection plan. Equally typically, the rates are extortionate.
Deposit accounts don’t show up on your credit accounts unless you go into collection, but financial institutions have other ways of figuring out if you are a risky customer. They primarily use a system called ChexSystems. It is a lot like a credit report except that it focuses on check writing. It is even regulated under the Fair Credit Reporting Act, like any other credit reporting agency.
It keeps records about people who have abused or mismanaged their deposit account. It’s basically a list of people who bounce checks or owe a bank money. If you bounce checks, your bank could report you to the ChexSystems system, and this information will be shared with other banks so that they may avoid extending a checking account to you because of your poor performance.
Negative reports are kept in the system, on file, for five years. After five years, the report will drop off your ChexSystems report. A bank can also ask ChexSystems to remove a negative report, which means you could have an opening for negotiation in some cases. The system also offers some identity verification services to banks, but the main thing they do is risk reporting.
They do not, however, decide whether you should be allowed a bank account. That’s up to the banks themselves. They don’t have a complete history, either. Only the negative items.
