Bounced Checks: What Are They and How To Avoid Fees
It can happen to anyone. You expect your paycheck to deposit on a Tuesday and write a check that day. But something keeps your paycheck from depositing and suddenly your check is being withdrawn from a $0 balance. You’ve just bounced a check.
The definition of a bounced check, or overdraft, is when you do not have sufficient funds in your account to cover a check you issued. This can easily occur when deposits and withdrawals do not align properly. It results in your account balances falling below expected levels and checks getting returned.
If this happens too frequently, there can be unpleasant consequences such as overdraft fees that make it difficult for account holders to stay financially secure.
What Happens When a Check Bounces?
Bouncing a check can have serious ramifications for your wallet and your credit score. Overdraft — the term for withdrawing over your balance — results in fees from most banks. Bounced checks may also affect your credit if they cause any debts to be referred to collections.
Overdraft charges have an immediate effect on your account. They are typically between $20 and $40 per check that bounces. Overdraft fees apply if your bank covers the total of a bounced check. This prevents a check from bouncing for the recipient but it results in an extra and unexpected cost, usually in addition to a negative account balance
If your balance was already running low, getting hit with additional fees can put you in a tight spot. Banks are not required to inform you that a check bounced. You may write several before noticing the issue — accruing additional overdraft fees with each withdrawal.
Luckily, most banks make it possible for you to avoid both bounced checks and their repercussions.
How Do Bounced Checks Affect Credit Scores?
While bounced checks are not reported to credit bureaus, they can still affect your credit score. This may occur if a check recipient refers an unpaid debt to a collection agency.
These types of derogatory marks on your credit report can be significant, dragging your credit score down as much as 50 points.
Catching a bounced check before it becomes an actual debt is critical to prevent credit score consequences. Both late and missed payments may be reported, with each resulting in a score reduction. If your payments are delayed due to a bounced check, remedy the situation as soon as possible.
Can a Bounced Check Lead to Legal Trouble?
Mistakenly bouncing a check will not often result in severe legal troubles such as criminal charges. However, bounced checks are criminal if they are written on purpose. For instance, if someone knew they had a $0 or a negative balance and continued to issue checks from a checking account to fraudulently purchase goods or services.
Honest mistakes will not result in criminal cases, but bounced checks can still have legal repercussions. If the check results in a missed or late payment, you may end up being referred to a collection agency. This is when your credit score may be affected.
You may also face lawsuits in civil court over bad checks. In this case, the recipient can take you to a small claims court and sue you for the amount of the check. They may also sue for damages, which would be an additional cost.
Some simple solutions can prevent bounced checks. Strategize with several options to have multi-layered protection against overdrawing your checking account.
Overdraft protection is a service your back provides to cover any accidental overdrafts. Your bank will transfer the amount from a linked account. This assures your check doesn’t bounce as the amount simply withdraws from your linked account.
Banks make it easy for you to link a checking account to others. These include a savings account, a credit card, a line of credit and more. However, depending on your bank, inter-account transfers may result in fees.
These fees tend to be better than general overdraft fees — perhaps even one-third as much — so in the case of an accidental check bounce, having overdraft protection will save you money. Depending on the size of your check — for example, your $1,500 monthly mortgage — it may be worth it to avoid late charges or missed payments by simply paying the protection transfer fee.
Good To Know
You can also look for banks that offer free overdraft protection. Some banks have limits of $100 or less, but this can offer peace of mind at no cost to prevent overdrafts.
Line of Credit
One of the specific options to sign up for overdraft protection is a line of credit. This permits you to instantly borrow an agreed-upon amount to cover potential bounced checks.
This line of credit is essentially a loan and you will have to repay it with interest if it is used.
A simple way to prevent bounced checks is to have up-to-the-minute notifications regarding your bank account’s balance. Signing up for notifications for each deposit and withdrawal in addition to daily balance updates will keep you on top of your account and prevent bounced checks.
Make it a habit to check your notifications before writing a check. This can prevent you from writing a check for money you don’t have.
With the modern solutions most banks provide — mobile banking apps in particular — consumers can essentially eliminate any risk of bounced checks. Using a combined strategy of overdraft protection, a line of credit and low balance alerts prevent accidentally bounced checks. Seek bank accounts that offer simple, low-cost or free protections so you can keep your money and credit safe.
How To Prevent Bounced Checks
Avoid bounced checks when you use multiple tools to monitor your balance and cover any outstanding charges. If you have money in other accounts or access to a line of credit, there is no reason to ever incur an overdraft fee.
Look for banks that offer overdraft protection, especially free options that can help you cover misaligned check payments without getting charged. Don’t pay to access your own money — especially if your balance is consistently low.
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- Experian. 2019. "What Are Overdraft Fees?"
- Credit.com. 2020. "What You Need to Know About Bounced Checks."
- HelpWithMyBank.gov. "Shouldn't the Bank Notify Me if I Overdraw My Account?"
- Los Angeles County Consumer & Business Affairs. "Bad Checks."
- CNBC. "What Is Overdraft Protection and How Does It Work?"
- U.S. News Money. 2019. "The 5 Best Accounts for Avoiding Overdraft Fees."
- Possible Finance. 2019. "How an Overdraft Loan or Line of Credit Works."