Missing a payment is the surest way of dropping your credit score. but what about other transgressions like going over your limit on your credit card or bouncing a check?
Bouncing a check: This is unlikely to hurt your credit score because banks don’t report bounced checks to credit bureaus. There are only a couple of instances in which a bad check can hurt you.
First, if you’re applying for a mortgage, your lender will do one of two thing: request bank statements, or request a verification of deposit (VOD) from your lender. If you’ve bounced any checks recently, it will show up on your bank statements and you’ll have some explaining to do. If your mortgage lender gets a VOD, there is a blank on that form where the bank fills in the number of checks you have bounced in the last twelve months. Bounced checks won’t blow out your mortgage approval if everything else looks good and you get an approval from an automated underwriting software program, but it could be the back-breaking straw if your application is being underwritten manually and there are other issues.
The second way a bounced check can harm your credit is if you fail to make good on it and it goes to collections. Then you get a booger on your credit history and a corresponding drop in your score.
Over limit on your credit card: This hurts your credit score because credit utilization is a significant component in the scoring model. The more of your available credit you use, the lower your credit score. Going over 100% will drop your score, but being near enough to 100% to risk being over your limit will have already done some damage. To make major progress on the utilization front, you’ll need to use less than half of your available credit. You get additional breaks for getting the ratio down to less than 30%, and again at less than 10%. One borrower who wrote in to the FICO forums claimed that his score dropped over 100 points just for increasing his credit balances from less than 30% of his available credit to over 70%. That’s significant.
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