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How a Bounced Cheque Will Reduce Your CIBIL Score?

How a Bounced Cheque Will Reduce Your CIBIL Score?

A single bounced cheque may seem minor, but if it becomes frequent, it can damage your financial credibility and negatively impact your CIBIL score. CIBIL score is a key metric for determining a borrower’s eligibility criteria. Whether applying for a home, car, or educational loan, if the CIBIL score is not good, the bank assumes that you might be unable to repay the EMIs on time. That’s why maintaining a positive score is vital to showcase your creditworthiness and ability to repay the dues.

Various factors, including cheque clearance, play a crucial role in determining a bankholder’s CIBIL score. While a single dishonored cheque may not directly impact your repayment ability, repeated cheque bounce can negatively affect your CIBIL score.

This blog explores questions like does cheque bounce affect CIBIL, and how to avoid it.

What is a CIBIL Score?

Credit Information Bureau India Limited issues a 3-digit number called a CIBIL score. It ranges between 300 and 900 and showcases the account holder’s creditworthiness and repayment capacity. A credit score is determined by your financial history, EMI repayment, and credit card bill clearance.

  • A score above 750 indicates low risk
  • A score below 750 indicates high risk

This 3-digit number holds the power to help obtain a personal, medical, car, and house loan.

What is a Cheque Bounce?  

A cheque bounce occurs when a cheque is presented for payment but cannot be processed due to insufficient funds in the issuer’s account. Other common reasons include signature mismatch, incorrect dates, overwriting, or technical errors. In India, cheque bounce is treated as a serious offence and may attract financial penalties and legal action.

The cheque bounce CIBIL effect becomes significant when the bounced cheque is linked to loan repayment or EMIs. In such cases, a bounced cheque can negatively impact your credit profile, leading to a drop in your CIBIL score. 

To avoid cheque bounces, ensure sufficient balance before issuing a cheque, verify all details carefully, inform the payee in advance if there may be a delay, or cancel unused cheques through your bank. In India, repeated cheque bounce will affect CIBIL score and may also lead to criminal proceedings.

Why Can a Cheque Bounce?

A cheque can bounce due to several reasons:

  • You do not have enough funds in your account to cover the requested payment.
  • Technical issues like signature mismatch, physical damage, or incorrect information.
  • There are alterations or overwriting on the cheque.
  • A cheque is issued from an inactive account.
  • The cheque crosses the stipulated overdraft limit.

If your cheque is bounced once, it will not hamper your credit score. However, multiple cheque bounce will affect CIBIL score, like:

  • There is a consistent pattern
  • The cheque bounces on an EMI

So does cheque bounce affect CIBIL? Yes, it can indirectly hurt your CIBIL score. Your credit report is the first thing that the lender cross-checks to assess your creditworthiness. When you apply for a personal or home loan and your CIBIL score is less than 750, the lender will hesitate to approve the loan.

How Does a Cheque Bounce Affect Your CIBIL Score?

A consistent pattern of cheque bounce will affect CIBIL score indirectly. Here are a few points that will affect when your cheque bounces.

  • Hamper Relationship With the Bank

Banks are careful about consistent cheque bounce cases. If your cheque gets dishonoured once due to technical issues, the authorities pass it as an isolated case. However, if it becomes a regular problem, the bank views it as financial irresponsibility. A bounced cheque will reduce your CIBIL score true or false? True for ongoing defaults that harm credit.

And in that case, your relationship with the bank gets affected, and you may face strict control measures for future transactions.

  • Restricts Credit Facility

With regular cheque bounces, bank authorities can block overdraft facilities, lower the credit limit, or freeze the account. Such restrictions can affect your financial transactions and management. For business owners, restrictions on credit facilities affect cash flow and vendor payments.

  • Leads to Litigation

If a cheque bounce leads to a legal issue, the court will not be in your favour. You will receive a recovery order, failure to which can damage your financial credibility and the cheque bounce will affect CIBIL score. Although a court judgment does not directly impact your CIBIL score, your future applications may be rejected.

  • Increases Risk Awareness

You might assume that a bounced cheque will reduce your CIBIL score and also leave a negative impression in the lender’s mind. They feel you are a high-risk customer and may not approve your loan application. While it may not directly affect your credit report, it can reduce your chances of getting loan approvals.

How to Avoid Cheque Bounces?

If cheque clearances are regularly missed, does cheque bounce affect CIBIL? Yes, your credit score can be affected. It’s important to be mindful of this and take steps to avoid such situations:

1. Switch to Digital Mode

For regular payments, choose digital transactions instead of dropping a cheque every time. You can use NEFT/UPI/RTGS/IMPS to avoid technical issues like sign mismatch or wrong details. A bounced cheque will reduce your CIBIL score true or false? Digital methods eliminate this issue completely.

2. Cross-Check Every Detail

Verify all the entries before handing over the cheque. A single wrong information (date, account number, or recipient name) can instantly result in dishonour. Also, remember to make sure the cheque is not torn, damaged, or outdated. 

3. Update Your Details

In case you have changed your signature, let the bank know so that there is no miscommunication. Such discrepancies can result in an invalid cheque, delayed payments, and a cheque bounce will affect CIBIL score.

4. Check Balance Beforehand

Confirm your balance before issuing a cheque. Keep a reminder in case regular transactions happen in the account to avoid situations like cheque bounce CIBIL effect. You can also enable a low-balance alert, which will help you monitor the bank balance regularly.

5. Track Post-Dated Cheques

When issuing post-dated cheques, track your account balance. You should make sure that you have enough funds around the cheque date. This will help you maintain your financial reputation with the lenders, vendors, and the bank.

What to Do in Case of a Cheque Bounce?

In the event of a cheque bounce, take prompt action to minimise any potential impact on your CIBIL score. 

  • Clear Your Dues: Arrange the payment as soon as you receive notification of a dishonoured cheque. This helps prevent escalation and shows your good faith. 
  • Talk to the Lender: In case of a cheque bounce, communicating the same to the payee can help clear the situation. You can discuss other payment options or decide on another mutually-agreed payment date.
  • Consult a Lawyer: In some cases, the matter may escalate to legal prosecution. Seek assistance from a lawyer and understand how you can tackle the situation. Being aware of your rights can help prevent consequences.

Although we have discussed that a bounced cheque will reduce your CIBIL score.  It is essential to understand what the score exactly is more than knowing does cheque bounce affect CIBIL score.

You can calculate your CIBIL score for free at the Tata Capital calculator.

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FAQs

Does a bounced cheque directly affect my CIBIL score?

A bounced cheque does not directly affect your CIBIL score.

How does a bounced cheque impact my creditworthiness?

A repeated bounced cheque case indicates that you are unable to clear your dues timel mannery, impacting your creditworthiness.

How many CIBIL points will I lose if my cheque bounces?

A cheque bounce does not decrease fixed CIBIL points, as it depends on the frequency and reason as well.

Will my cheque bounce reflect in my CIBIL report?

Yes, every cheque-related transaction reflects in the CIBIL report.

What are the penalties that one suffers due to a cheque bounce in India?

You can suffer from imprisonment for up to 2 years or a fine of more than the amount of the cheque.

What is/are the preventive measures against cheque bounce in my account?

You can talk to the lender, consult a lawyer, or immediately clear the due in case a cheque bounces in your account.

How do repeated cheque bounces affect my banking relationship?

Repeated cheque bounces can negatively impact your relationship with the bank, as the authorities will not trust you or approve a loan, provided you do not improve your credit score.

Does a single bounced cheque directly lower my CIBIL score?

If you are wondering, a bounced cheque will reduce your CIBIL score true or false, then the answer is no. A single bounced cheque doesn't directly lower your CIBIL score because CIBIL tracks loans and not bank account transactions. But if the bounce causes you to miss an EMI or loan payment, that default is reported and the EMI bounce affect on CIBIL will lower your score.

Can frequent cheque bounces lead to legal action?

Yes. Frequent cheque bounce CIBIL effect can lead to serious legal actions under Negotiable Instruments Act, 1881. This includes criminal charges, significant fines, and even imprisonment in India.

How long does a cheque bounce stay on my credit report?

If a cheque bounce causes you to miss an EMI on your loan repayment, the EMI bounce affect on CIBIL stays on your credit report for seven years from its date of settlement. 

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