Has it ever happened to you that you issued a check and it bounced? This situation not only creates embarrassment and inconvenience, but can also lead to fines, additional charges from the bank and sometimes legal hassles. In such a situation, the biggest question that comes in the mind of most people is, does my CIBIL score get spoiled due to check bounce? It is important to know the answer to this, so that you do not panic and can handle the situation properly.
What is CIBIL Score and why is it important?
CIBIL Score is a 3 digit number (between 300 to 900) which reflects your credit history and ability to repay the loan. Score of 750+ is considered good. Due to this, banks or financial institutions consider you trustworthy, due to which loans and credit cards are available easily and at better interest rates. While giving a loan or credit card, banks mainly look at factors like payment history, credit utilization ratio, loan variety and timely payment.
When and why does a check bounce?
Check bounce occurs when the bank is unable to clear the cheque. The main reasons behind this could be insufficient balance in the account, mismatch in signature, wrong/invalid date, overwriting or difference of numbers and words in the amount, account being closed, frozen or blocked. According to herofincorp, this is a normal banking transaction, but if the recipient complains under Section 138 of the Negotiable Instruments Act, 1881, it may lead to legal notice, fine (up to double the check amount), or even court/jail action.
Does check bounce have a direct impact on CIBIL score?
The simple answer is, no. CIBIL score is not directly affected by check bounce. CIBIL (TransUnion CIBIL) and other credit bureaus only track credit related transactions – like loans, credit cards, EMIs, bill payment history. Check bounce information related to normal savings/current accounts is not reported to the credit bureaus. So a simple bounced check (like owing money to someone) doesn’t show up on your credit report and doesn’t immediately impact your score. But there can be an indirect impact, if the check was given for any loan EMI, credit card bill or any credit payment and that payment is missed due to bounce, then there will be a default report. Due to this the score may drop by 20-100 points. Frequent check bounces may make the bank consider you a risky customer, making it difficult to get a loan/overdraft in future – this indirectly affects the credit profile.
What to do in such a situation?
Instantly add sufficient balance to the account and make the optional payment to the recipient. Ask the bank about the bounce charge and the reason, if necessary request that they do not report it considering it to be a technicality (if related to EMI). Don’t let checks bounce again and again – use digital payments (UPI, auto-debit). Check your CIBIL report regularly and correct any mistakes you find. If a legal notice has come, try to compromise by making payment immediately.
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