What Happens When You Write a Bad Check?

Hopefully, it rarely if ever happens to you. But every once in awhile we forget to keep track of our checking account balance and a bad check is written.

You may have also heard it referred to as bouncing a check, a rubber check, or writing a hot check. The banking industry uses the term non-sufficient funds or NSF.

When you write a bad check you will overdraft your account because the amount you wrote it out for exceeds the amount available to you.

Writing bad checks is illegal, and you should avoid it at all costs. You won't be sent to jail for writing one or two personal checks that bounce. However, you will most likely be charged a fee, and if you continue to write bad checks, or do so purposefully, you will find yourself in trouble with the law.

There are a few things that can happen when you write bad checks.

Grace from the Bank

If a personal check you write surpasses the balance of your account by only a small amount, your financial institution may choose to honor it. That's because they trust you as a customer, and can see that it may have been an honest mistake. Be aware - you'll probably still be charged an overdraft fee.

It is more likely that personal checks written for an amount far exceeding the balance of your checking account will not be honored. You bank or credit union will send the check back to the bank asking for withdrawal, and it will eventually get sent back to the place where you wrote the check.

Overdraft Protection

Your bank may provide you with overdraft protection. That means it will cover the cost of a bad check and charge you a fee for the process. This will show up on your monthly statement as an NSF fee.

Many people also link their checking account to a savings account. That way - if you write a bad check - money will be withdrawn from your back-up account.New laws require banks and credit unions to give customers the option of accepting or refusing overdraft protection. Read more about that in this article: New Overdraft Rules and Personal Checks.

You've Been Reported

When you write bad checks, your financial institution may choose to report you to a number of different organizations that keep track of consumers and companies that write bad personal and business checks. Those organizations include ChexSystems, Check Connection and TeleCheck as well as the Shared Check Authorization Network or SCAN.

Once reported, the information usually stays in the database for 3 to 5 years. You can usually request a free transcript from these organizations to find out if you've been reported.

Merchants and financial institutions refer to these databases on a regular basis. If these databases indicate you have a history of writing bad checks, you could find that businesses refuse to accept your personal checks and banks will not allow you to open a new checking account.

Writing a bad check won't necessarily affect your credit score, but it can still happen through other channels. Merchants who receive bad checks from you may report you to a collection agency, which will in turn report you to one of the three major credit bureaus (Experian, Equifax and Transunion). If you bounce a check to a lender, such as the creditor who owns your home or auto loan, they may also choose to report you.

That's why it's important to keep a close eye on your checking account, and rectify any problems as soon as possible.

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