In today's digital age, even though the use of UPI and net banking has increased, the cheque is still considered a reliable and important means for big transactions, business deals, and paying loan EMIs. But sometimes the cheque gets bounced due to reasons like insufficient balance in the account or a mismatch of signatures. Some people believe that if the cheque bounces repeatedly, it spoils your CIBIL score. Is this true? Is a bounced cheque the enemy of your CIBIL score? Understand here-
First of all, understand what a CIBIL score.
CIBIL score, also known as a credit score in common language, is a mirror of your financial credibility. It is a 3-digit number, which ranges between 300 and 900. The closer your score is to 900, the stronger your financial profile will be considered. Banks or any financial institution check your CIBIL score before giving you a loan or credit card. This score is determined according to your loan repayment habits, credit card bill payment history, etc.
Now know whether a cheque bounce spoils CIBIL?
The simple and straight answer to this is - the incident of cheque bouncing does not directly affect your CIBIL score. It is important to understand the reason for this. CIBIL (or other credit bureaus like Experian, Equifax) track your credit history only when a bank or financial institution sends them data.
When you give a cheque to a person, friend, or shopkeeper and it bounces, then this transaction is between you and that person. The bank can impose a penalty on it, but it does not send the information of this personal transaction to CIBIL. CIBIL has nothing to do with your every cheque transaction.
So where is the danger then?
The real twist in the story comes when the cheque bounce is related to a credit, i.e., a loan. Here, a cheque bounce can badly affect your CIBIL score. Let's understand this through some situations:
Scenario 1: Loan EMI or credit card bill
This is the most common and dangerous situation. Suppose you gave a cheque to the bank to pay your car loan EMI or credit card bill. If that cheque bounces due to a low balance in your account, then in the eyes of the bank, you did not pay your EMI or bill on time.
What happens: Will the bank consider this as 'payment missed' or 'default'?
The bank will directly report the information of this 'payment default' to CIBIL. CIBIL does not care how the payment failed, for it is a 'due date missed'. This will be recorded as a negative entry in your credit report, and your CIBIL score can fall by 50 to 70 points or even more.
Scenario 2: Your deteriorating relationship with the bank
If your cheques bounce repeatedly, even if they are for a personal transaction, then your bank may see you as an irresponsible customer.
What happens: The bank may start keeping a close watch on your account.
When you apply for a personal loan, home loan or credit card from the same bank in the future, the chances of your application getting rejected will increase. The bank will hesitate to give you a loan considering your poor 'financial discipline'. This does not directly affect CIBIL, but it affects your ability to take a loan.
Situation 3: Legal action
If the amount of the cheque bounce is large, then the person to whom you gave the cheque can take legal action against you under 'Section 138 of the Negotiable Instruments Act, 1881'.
What happens: This can become a criminal case, in which you can be fined and jailed.
Effect: If the case goes to court and the verdict comes against you, then it becomes a blot on your financial record. This legal matter can become a hindrance in your way while taking a loan in the future.
Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
