When you write a bad check you are essentially making a payment or purchase that you can’t afford at that time.
It may be that you are unaware of the current balance in your checking account, or you could be using your bank’s overdraft protection as a type of loan.
It may also be referred to as bouncing a check, writing a rubber check or a hot check. The financial industry uses the term non-sufficient funds or NSF.
Writing a bad check will result in overdrafting your account. There are a few different things that can happen when you bounce a check.
What Happens at the Bank
The bank may decide to give you some grace if you write a personal check for a small amount over what’s in your account. They most likely trust you as a customer and think you made an honest mistake. For this reason they may choose to honor your check even though you don’t have the money at that time.
Bad personal checks are also a way that banks make money. That’s because banks and credit unions will most likely charge you a fee for every check you bounce. You will see it on your statement as an NSF fee.
Many banks offer overdraft protection. That means they will cover the payment of any bad checks you write, but you’ll still be charged a fee.
New rules require financial institutions to allow customers to opt out of overdraft protection for ATM transactions and everyday debit card use. However, these rules do not apply to personal checks.
If you overdraft your account by a large amount, your bank or credit union is much less likely to honor the check. In this case, the bad check will be sent back to the bank asking for the withdrawal and eventually back to the person or business that received the check from you.
What Happens to You
There are a number of things that can happen if you write a bad check. For example, the business that received it won’t be getting paid and will want the money you owe. A company may choose to pursue legal action or hire a collection agency to get the payment.
You can also be reported to one of a few agencies that keep track of those who consistently write bad checks. If you’re activity has been recorded by organizations like ChexSystems, Check Connection or the Shared Check Authorization Network (SCAN), you may find it nearly impossible to open a checking account and some stores may refuse any checks you write.
Negative check writing activity can be kept on file at these agencies for as long as five years. You should be able to request a free transcript to find out if you’ve been reported.
While you won’t be sent to jail for accidentally bouncing a few checks, it is illegal to do so knowingly. If you’re writing bad checks all over town you will get in trouble with the law.
Writing a bad check doesn’t necessarily have an impact on your credit score. Your bank won’t report you. However, if lenders or collection agencies to whom you owe money decide to report you to any of the major credit agencies – it can affect your score.
That’s why it is very important to keep a close eye on your checking account balance and avoid overdrafts at all costs.
Other Reasons for Overdrafts
Writing a bad check isn’t the only way an overdraft can happen. It may not be your fault at all.
Occasionally banks make mistakes, as do merchants. A store could overcharge you for something. For instance – you may write a check out for $15.00, but the cashier enters the check as $150.00. Tellers who work at the bank can also make human errors when updating your account.
Keep a close eye on your monthly statement and keep all your receipts so that you can catch mistakes that might affect your account balance.
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+Kasey Steinbrinck honed his writing skills as a TV producer and newspaper reporter. He now blogs on personal finance and the economy for Check Advantage. Visit the site today to find cheap personal and business checks including Quicken Checks and Scenic Checks. Plus, we now offer matching address labels!