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Why Writing Bad Checks is a Bad Idea by Kasey Steinbrinck Writing a bad check is certainly something that you should avoid doing on a regular basis. But every now and then we all make mistakes. 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. Your account will be overdrafted every time you write a bad check. That's because the amount you wrote it out for exceeds your checking account balance. Writing bad checks is illegal, and you should avoid it at all costs. If you've only written a few bad personal checks, you shouldn't have to worry about getting sent to jail. However, realize that you're going to be charged a fee. If you keep writing bad checks, or bounce checks on purpose - you could get in some legal trouble. 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. Your financial institution will send the check back to the bank it came from, and it will eventually be returned tot he place where you wrote the check. Overdraft Protection Your bank may provide you with overdraft protection. This means the bank will cover the cost of the check you bounced while charging you a fee for doing so. You'll notice this on your bank statement listed as an NSF fee. Many people also link their checking account to a savings account. That way - if you write a bad check - funds will be taken from a back-up account, such as your savings account. New laws require banks and credit unions to give customers the option of accepting or refusing overdraft protection. 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. ChexSystems, Check Connection and TeleCheck as are a few of those organizations. Once reported, the information usually stays in the database for 3 to 5 years. These organizations will usually give you a free transcript at your request, if you want to know why you've been reported. Business owners and banks look at these databases on a fairly regular basis. If your name ends up on one of these databases indicating you have a history of bouncing checks, business could refuse to accept your personal checks, and financial institutions won't let you open a new 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. As you can see, it's smart to keep a close eye on your checking account and fix any issues as soon as you can. Writing about personal finance issues is one of Kasey Steinbrinck's passions. Find out more about checks in the Check Education section at Check Advantage.

 

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