Here is How a Bounced Cheque Can Affect Your CIBIL Score

These days, almost everyone relies on loans to fund life’s basic needs. For instance, majority of home buyers avail of Home Loans to fulfil their dream of becoming homeowners. Similarly, most people opt for car loans to buy a car and education loans to put their child through college. Loans have certainly made life easier. However, not everyone who applies for a loan gets approved for one. When a borrower defaults on loan payment, the lender suffers and therefore, lenders are quite careful about borrowers meeting the set loan eligibility requirements. One of the key parameters that affects loan eligibility is the CIBIL score. 

What is CIBIL Score?

The CIBIL score is a three-digit number between 300 and 900 that indicates a borrower’s repayment capacity and creditworthiness. A good CIBIL score indicates high creditworthiness and high repayment capacity. Therefore, borrowers who have a high CIBIL score get approved for loans quickly. Further, such borrowers also get highly beneficial loan terms and conditions. People with a low CIBIL score, find it difficult to get approved for a loan.  

In this article we look at how a cheque bounce affects CIBIL. However, before that, let us understand what a bounced cheque is.  

What is a Bounced Cheque?

A bounced cheque, also known as a dishonoured cheque, is a cheque that remains unpaid due insufficient funds, information mismatch, stop payment order, or incorrect date on the cheque. A bounced cheque can impact your CIBIL score negatively.  

How does a Bounced Cheque Affect a Borrower’s CIBIL Score?

One of the most common reasons why cheques bounce is insufficient funds in the account of the borrower. A bounced cheque does not have a direct impact on the borrower’s CIBIL score. However, if one or more than one cheque of yours have bounced in the past, this information will be there on your credit report. When you apply for a Home Loan, your lender will pull out your credit report to assess your creditworthiness and when they see records about bounced cheques, they may feel convinced that lending money to you is not a great idea altogether. Further, borrowers must know that while a one-time cheque bounce will not affect your CIBIL score, repeated cases of cheque bounces may lead to your credit score going down. 

What is the Impact of a Bounced Cheque on Your CIBIL Score?

Financial institutions do not report ‘bounced cheques’ to credit rating agencies. So, if a couple of your cheques bounced, do not worry too much. However, if your bounced cheques are leading to you missing EMIs and credit card bill due dates, your CIBIL score will most certainly get impacted. So, a bounced cheque does not have any direct impact on your CIBIL score. However, it may indirectly lead to your CIBIL score going down. 

Lenders require borrowers to have a CIBIL score of at least 750 to be eligible for a Home Loan in India. If you do not have the required CIBIL score, here's what will happen.  

Also Read: 10 Factors That Affect Your Home Loan Eligibility  

• If you have had too many bounced cheques, which in turn, has led to you missing way too many EMIs and credit card bill due dates, your CIBIL score would have gone down considerably. If your CIBIL score is below 650, it is quite likely that no lender will be willing to offer you a loan. In this case, you will either have to add a co-borrower to your loan application or buy mortgage insurance to convince your lender of your ability to repay loan on time.  
• If you have missed only one or two EMIs, your CIBIL score would have not gone down so much. If your CIBIL score is between 700 and 750, it won't be difficult for you to get approved for a loan. However, you may find yourself repaying the loan at a high interest rate. Further, your lender may also ask you to make do with a loan amount slightly lower than what you are eligible for and ask you to pay this loan money over a shorter loan tenor. 

Also Read: Tips to Maintain Your Business CIBIL Score Above 700 

Final Words

Lenders should try and make sure their cheques never bounce. When a borrower's cheque bounces, their credit score may not take a direct hit. However, lenders will most certainly trust them less and therefore, think twice before lending them money.