It’s the end of a typical day in a typical week, and you get a phone call: your last check bounced. You scramble to look at your accounts and realize that a $50 check for your daughter’s previous dentist visit was deposited a month late, and didn’t factor into your spending calculations for the current month.
You might feel embarrassed and frustrated about that small amount and one overlooked check, and you’re probably a little confused. This is a new experience for you, so what happens when you bounce a check?
The good news is, very little, so long as you can fix the error and don’t make a habit of it. Your check bounces when you don’t have enough money in your account to cover it, so you’ll need to pay that outstanding bill while, ideally, refilling your account. With these helpful steps, you can learn about what happens if you bounce a check, and ready yourself with ways to prevent doing so again in the future.
Bounced Checks: The Biggest Culprits
There was a time when everyone wrote checks for everything from a clothing store to paying monthly bills. Now, many payments are set up electronically, which has unfortunately made it harder to track just how much money will be in your account when the check you write is deposited.
Some of the ways checks bounce are based on human error and others are based on bad timing. These are some of the most common contributors to bounced checks:
1. Automatic Payments
Setting up automatic bill pay helps you make sure that all bills are paid on time. But if you forget about that setup for just one month, you could end up writing a check for more than your account holds. See when your bill payment will be deducted and change it so that your payment goes out several days after your paycheck arrives. Remember what that payment date is – and find out what happens when it falls on the weekend – so every month you can confirm your account is still healthy.
2. Late Deposits
Your employer deposits your paycheck on the 25th of every month, and you know you have an additional check coming from some freelance work you did. And yet, when you wrote a check on the 26th, it ended up bouncing. Sometimes your expected deposits can be late, which is again why it’s important to monitor your account regularly, but particularly when you expect money is coming in or out.
Both of the above situations require assumptions on your part, that your money will deposit when you expect it to and that your bills will be paid without you needing to worry. When it comes to your finances, never assume that anyone has your best interest in mind – that’s up to you. By monitoring your account even once or twice a month, you’ll be able to track your spending patterns and see where you can help balance out payments, so you never run into this situation again. Try an app like Trim that will give you an easy way to see your account balances while helping you save money on utilities and other negotiable costs.
How To Catch A Check Before It Bounces
Your goal should be to avoid any chances where a check you write could or would bounce, but if you see that you may have insufficient funds in your account, you can try and take action before that check actually bounces.
It’s an excellent method to protect yourself, but it will also require you to be responsible for tracking your spending and monitoring your account. It’s easy to forget to look at your balances and verify your activity, which leads to a higher likelihood of bounced checks.
As soon as you think a check is going to bounce, you must get funds in your account to cover it. With a paper check, you may get a couple of days before that check is deposited and processed, so get to your bank immediately. Use cash for your deposit if you can since it will clear almost immediately.
What To Tell Your Check Payee
It’s going to be easier for everyone involved if you call the person or company you wrote a check to and tell them your situation. They may be willing to hold off on depositing the check until you have sufficient funds in your account – they just want to be paid and will likely be happy they’ve avoided an unpleasant situation for everyone.
The Short-Term Fallout: What Happens When You Bounce A Check?
If you weren’t able to catch your check before it bounced, you’ll be responsible for additional penalties and fees – possibly on all ends.
- Overdraft Charges: The average overdraft fee at banks is now $30 according to MarketWatch, and you can expect that charge as soon as the bank realizes you don’t have enough funds to pay. At this point, you must make sure you get additional funds in your account as quickly as possible: if other charges start hitting your account, you’ll have to pay additional overdraft fees – making it harder and harder to rebuild your account.
- Returned Check Charges: You’re not the only one getting hit with a fee when you bounce a check; whoever you paid that amount to will also likely get a bank charge for a bad check on their end and the payee will come to recoup those losses from you. States typically set a maximum fee that bounced check writers can be charged, with the lowest being $10 in Puerto Rico and the highest $50 in Kentucky and Virginia.
- Repeat Efforts: If your payee hasn’t heard from you about a lack of funds in your account, they may try depositing the check again – and again – hoping that you’ve refunded your account. If you haven’t, expect fees to keep coming back until the issue is resolved.
Your Long-Term Financial Wellness: What Happens If You Bounce A Check?
The entire process of bounced checks can be frustrating and draining. But even worse is the potential problems for your finances in the future. When you speak to your check payee and bank about your payment troubles, everyone can work together to understand and fix the situation. But when your check enters the system as bad, you’ll find potentially more significant problems. The top 3 concerns are:
- Your Credit Score: You won’t have a hit to your credit score just by passing a bad check unless it was to a creditor that reports your payments to the credit bureaus. For example, if you write a check to your credit card company that bounced and can’t get a new one out until after your minimum payment is due, they can report that payment as missed or late.
- TeleCheck and ChexSystems: Your banking information won’t be shared with the big three credit bureaus, but a bad check may be reported to TeleCheck or ChexSystems, which are bank versions of consumer reporting. When you bounce a check, that can stay in the system for five years, which tells potential creditors, banks, and payees that you’ve had a problem in the past.
- Debt Collection: Unless you are writing bad checks regularly you’re likely going to stay out of any legal trouble, but if you don’t resolve the owed amounts, you could expect that debt to go into collections, which means dealing with phone calls, letters, and added stress.
How To Avoid Bouncing Checks In The Future
Proactive management is going to help you make sure you don’t overdraft your account by bouncing checks. You should have a system for monitoring your account activity and making a note of when you wrote checks and how much they were for. If you used to balance your checkbook manually, it could be helpful to use that process as guidance for always knowing what you have and what you spend.
You’ll also want to be sure that you have a savings account or emergency fund that can help prevent you from this reoccurring. If you have linked savings and checking accounts, you may be able to have overdraft protection by automatically allowing for transfers from savings to checking when your balance is low. An emergency fund can be a lifeline when you need to put cash in your account immediately to prevent a bounced check.
Bouncing a check isn’t the end of the world, even if it feels like it. Remember to be proactive by contacting any related parties, and keep a healthy savings fund on hand to protect you from insufficient funds in the future.