What happens when one puts a rubber ball down on the floor? Simple it bounces back. So what can be a bounced cheque?
A bounced cheque is nothing but a cheque that is returned by the bank because the account holder who offered the cheque does not have sufficient money to honour the cheque (do the payment or transaction). May be it the returning of the cheque, just like a bounced rubber ball gave it the name?
All the banks these days have a penalty charged on the account holder who issued the bounced cheque. This is because the bank has taken the efforts to process and service the cheque though the actual transaction is not done.
A bounced cheque could spoil ones credit history. When a person applies for a loan in a bank, the bank verifies the credit history of the applicant from other banks and asks for a bank statement. Too many bounced cheques in your account spoils the credit history, and that will be evidently shown in ones bank statements. The banks verifies with other banks also for the credit history. So applying for a home loan or car loan in a different bank need not help improving the credit history spoiled by bounced cheques.