Bounced check no harm to credit

By David W. Myers

Friday, June 26, 2009

Q:I am planning to refinance my mortgage. I am self-employed, and a $4,000 check that one of my clients wrote for some work I did was sent back to me because he didn’t have enough money in the bank to cover the $4,000. Because his check bounced, three of the checks that I wrote to pay some bills also bounced. Will this hurt my credit score and force me to pay a higher rate when I file my refinancing application?

A:No, the checks that you bounced because your client’s check was returned by the bank should have no impact on your credit score or refinancing plans — provided that you act quickly.

Bounced checks are not reported to credit bureaus, so they don’t automatically lower your score. However, if you don’t soon “make good” on the three checks that you wrote and the creditors eventually turn the accounts over to a collection agency, the agency or creditors themselves will indeed report the unpaid bills to the bureaus and your score will be lowered.

Of course, the lower your score, the higher the rate you will have to pay when you apply for the new mortgage. That’s why it’s so important to replace those bad checks that you unwittingly wrote with good ones as quickly as you can.

Q:I have owned my home for several years, and am planning to marry in August. My fiancee, who owes nearly $12,000 in back taxes to the Internal Revenue Service, rents an apartment and will move in with me after the wedding. If I add her name to the title to my home after we are wed, could the IRS place a lien on my house to recover the money that she owes?

A:Yes. If you continue to hold title to your house in your name only, the IRS won’t be able to touch it, because your new spouse would have no ownership stake in the property.

You will lose this valuable protection if you instead add her name to the title. It would enable the government to slap a lien on your house so it could recover the money when you eventually sell, or perhaps even force the two of you to sell immediately to collect the back taxes.

Play it safe. Don’t put your soon-to-be wife’s name on the title to the home until she settles up with the IRS and pays any other overdue bills that she may owe.