- Understand the additional fees and consequences for late or missed credit card payments.
- Contact your creditor if you are going to be late on your payment.
- Avoid accidental late payments by using an online bill-pay service.
How Late Payments Affect You
Your credit card is an important financial tool. Using your credit card improperly can have devastating long-term effects on your finances. When you use a credit card you taking a loan and have a contractual obligation with the creditor. A credit card offers you the convenience of not carrying cash, the ability to rent a car or reserve a hotel room, and it allows and the ability to finance your debt. Financing the debt allows you to buy goods and services beyond your ability to pay in full up front. In exchange for these benefits and convenience, you obligate yourself to pay your credit card s monthly minimum payment on time each month.
A common mistake consumers make when using credit cards is not paying the bill on time. The long and short term consequences of skipping a payment, paying your bill late, or paying less than the minimum required payment by the due date are severe. You will suffer three harsh results from paying late or not paying at all:
Late fees are charged when you make your payment late or skip a payment, A late fee charge is added to your balance. Since a late fee is not a one-time charge, you will be charged every time you are late or miss a payment. Remember the additional fees added to your balance will accrue interest like any other charge you make. Late fees normally range from between $15 to $50.
Interest Rate Hike
If you make a late payment or skip a payment, you may see your interest rate raised to the creditor’s default rate, which can be sky high. Default rates can be as high as 35%. If you carry a running balance and your rate is hiked to the default rate, the additional interest costs make paying off your balance long and difficult task.
Credit Score Damage
Any time that you are 30 days late on a credit card payment, your delinquency will be reported by your creditor to the credit bureaus. This will lower your score. Being less than 30 days late does not cause harm to your score, as opposed to the late fees and interest rate hikes where even one day late creates serious problems. Once a late payment is reported to the credit bureaus, that derogatory mark will remain on your credit report for the next 7 years.
The damage to your score of one 30 day late payment is not severe, but should be avoided whenever possible. The longer your account remains delinquent and the further behind you fall, the heavier the damage to your credit score. A 60 day late payment causes more severe damage than a single 30 day late payment, as do a series of 30 day late payments.
Credit CARD Act of 2009
One benefit to consumers from the Credit Card Act of 2009 is that universal default has been eliminated. It used to be the case that making one late payment to a single creditor could be used by all your other creditors as a reason to raise the rates on every credit card you have. Fortunately, that is no longer the case; your interest rate can only be hiked by the creditor with whom you were late.
Avoid the Problem
If you know that you are going to be late on a credit card payment, make the effort to contact your creditor directly. If this problem is a first time occurrence, your creditor may be willing to waive the late fee or refrain from hiking your interest rate to the default rate,. The creditor may say ‘no,’ but if you don’t ask, you are sure to suffer the late payment consequences.
Sometimes, you may miss a payment not because you do not have the money to pay the bill, but because you simply forgot to do so. It is one thing to suffer the consequences of a late payment, when you lack the means to pay. If you can afford to pay the bill and still suffer the harm, it is like shooting yourself in your foot. A great way to avoid this kind of late payment problem is to make your payments online. You can set up an automatic payment for an amount that will regularly meet the monthly minimum payment required. You can likely set up this kind of payment online with the creditor or with the online bill-pay service your bank offers. Set the payment for four or five days before the recurring due date. That way, you can monitor whether your payment was received and if not, have time to make the payment or contact the creditor. Remember you can always supplement a payment. Adding additional funds to your minimum payment reduces the principle of the balance and lowers your future finance charges.
If you find yourself overwhelmed by debt and unable to pay your bills in a timely manner, make sure to review and compare all the debt relief options available.