Having a check bounce can be a lot worse than having a debit card declined.
If you hand over a debit card at a store and don’t have enough money, you know right away if the purchase didn’t work and if you need to pay with something else. But with writing a check, it’s a different story.
Using checks can be risky if your checking account balance fluctuates regularly. Here’s what one bounced check can cost you.
You might pay a bank fee
When a person or business receives your check and deposits it at their bank, the check returns to your bank. This won’t happen immediately, since it typically takes at least a business day for banks to process checks. If the check returns and there isn’t enough money in your account to pay it, your bank can decide to cover it. This means that the check gets paid and you get charged an overdraft fee. It’s an expensive fee, usually $30 or $35, but nothing else happens.
But your bank doesn’t have to cover the check. If it doesn’t, the check bounces and you get charged a returned item or nonsufficient funds fee. This costs about the same as an overdraft fee at many banks, but that’s not the end of it.
Plus another fee
Many businesses that accept checks have specific policies for when they get a check from an account without sufficient funds, which may include charging a service fee. This fee can cost between $25 and $50 and generally covers the amount of the bank fee that the merchant gets hit with because of your bounced check, known as a returned deposited item fee. They can charge more on top of that.
“The merchant adds something to the cost for their aggravation,” says Greg Litster, president of SafeChecks, a check fraud prevention firm in Canoga Park, California.
Utility companies and landlords that receive a bounced check can charge a returned payment fee if it’s in the contract you signed with them. A landlord might also tack on a late payment fee if your rent ends up being late — and might have the power to evict you if you don’t pay the rent plus charges.
And you can get written up
If you bounced your check with a merchant, you can get listed in a database collected by TeleCheck, a consumer reporting agency. Many merchants that accept checks, especially major retailers like Wal-Mart and Target, use this agency’s database or a similar one before they take your check. They screen checks they get to weed out people with a history of fraud or bounced checks. If you get on the list, you won’t be able to use checks at other merchants that also screen checks.
“A check is a very risky instrument for a merchant to take,” says Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association in Washington, D.C. “That’s why a lot of merchants don’t take checks at all.”
If you refuse to pay the amount of a bounced check within the time frame your bank specifies, it can close your account. You can end up on the database of another consumer reporting agency, ChexSystems. This one collects information on people who mishandle bank accounts, including checks, to the point that those accounts get closed. About 80% of banks use ChexSystems to screen people who apply for new bank accounts, so getting written up can affect your chances of opening a new bank account.
“Generally speaking, a single bounced check will certainly lead to the fees from both the bank and the merchant, but it won’t necessarily lead to an account closing,” says Nancy Atkinson, senior analyst at Aite Group, a research firm in Boston.
But it’s unlikely to damage your credit
All three major credit reporting bureaus — Experian, Equifax and TransUnion — told NerdWallet that a bounced check wouldn’t appear on a credit report unless it goes unpaid and becomes an outstanding debt that’s reported by a bank, merchant or debt collection agency.
“To my knowledge, it’s uncommon,” says Rod Griffin, director of public education at Experian.
Just don’t bounce more checks
If you write a check aware that you don’t have enough money, you can go to jail. Christina Tetreault, staff attorney at Consumers Union in San Francisco, explains that writing a check with the intent to deceive is a crime under California law. Many states have similar laws.
Simply put, don’t use a check if you don’t have enough money in your checking account. But if you do make that mistake, contact your bank and the person who received your check to explain your situation and make good on the payment.
Closed bank accounts, jail time and other worst-case scenarios from a bounced check probably won’t happen to you, but you don’t want to take chances.