What Is a Returned Payment Fee on a Credit Card?

A returned payment fee on a credit card is a charge imposed by your credit card issuer when a payment you attempt to make is rejected or fails to clear. It signals to the card issuer that the funds or payment method intended for your credit card bill were not valid at the time of processing.

What is a Returned Payment Fee

A returned payment fee is a penalty levied by a credit card company when a payment initiated by a cardholder is dishonored by the originating financial institution. When you submit a payment, the credit card company attempts to collect those funds from your designated bank account. If the bank rejects this request, the payment is “returned” to the credit card issuer.

The credit card issuer then applies a fixed charge to your account to cover the administrative costs associated with the failed transaction. This fee is distinct from other charges you might encounter on a credit card, such as late payment fees or annual fees. While specific amounts can vary by issuer, these fees commonly range from $25 to $40 per instance.

Reasons for Returned Payments

Payments to credit card accounts can be returned for several reasons, often stemming from issues with the source bank account. A frequent cause is insufficient funds (NSF), meaning there was not enough money in the linked checking or savings account to cover the payment amount at the time the credit card company attempted to collect it.

Another reason for a returned payment is incorrect account information, such as an erroneous bank account number or routing number provided during payment setup. Payments may also be returned if a stop payment order was placed on the transaction or if the bank account linked to the payment has been closed or frozen.

Impact of Returned Payments

A returned payment on a credit card carries consequences beyond the immediate fee. Your credit card issuer may also impose a late payment fee if the original payment was intended to meet the minimum amount due by the due date and the return causes you to miss it. This can lead to a compounding of charges.

The failure of a payment can negatively impact your credit score, especially if it results in a missed or late payment being reported to credit bureaus. Payment history accounts for a significant portion of your credit score, and a payment reported as more than 30 days past due can remain on your credit report for up to seven years. Repeated returned payments may also prompt the credit card issuer to suspend or close your account, or even increase your annual percentage rate (APR).

How to Avoid Returned Payment Fees

Preventing returned payment fees involves diligent management of your bank accounts. Regularly monitoring your checking or savings account balances ensures that sufficient funds are available to cover scheduled credit card payments. Setting up low-balance alerts with your bank can provide timely notifications, allowing you to transfer funds before a payment attempt.

Verifying that all payment information, including bank account and routing numbers, is accurate when setting up payments is important. Scheduling payments several days before the due date provides a buffer, allowing ample time for processing and for you to address any potential issues.