A late credit card payment is an easy mistake. You might forget your due date, not have enough funds to make a minimum payment or find out the check you thought was in the mail was never really sent.
Although a late credit card payment is an understandable mistake, there are consequences. This mistake can affect your credit rating and finances for months and years. However, there are steps you can take to repair the damage and avoid making the same error again.
Consequences of a Late Payment
Late payments can trigger negative events. A late fee typically applies right away, and your late payment may be reported to credit bureaus. You may be subject to a penalty APR — the annual percentage rate — and lose access to earned rewards.
Late fees
Your credit card bill will be sent to you at least 21 days before your payment is due. This is what’s known as the grace period. If you pay your bill after the due date, make less than the minimum payment or don’t pay at all, your credit card issuer will charge a late fee. Late fees generally range between $25 and $38.
Credit score
Payment history makes up 35 percent of your FICO credit score, so a late payment can be harmful for your credit rating. A late payment can stay on your credit report for seven years from the date of the first delinquency.
Over time, the impact of a late payment will fade. Recent missed payments have a greater impact on your credit score than older ones.
[Read: Best Rewards Credit Cards of 2018.]
“One skipped payment made years ago for a small sum will be far less impactful than if you were to skip many payments in the past year, and for large amounts of money,” says Erica Sandberg, author and personal finance expert with Sandberg Financial Education Services. “Still, a single late payment on your credit report, even if it’s for $20, will cause your scores to decline.”
Your FICO credit score considers a number of late payment factors:
— Length of delinquency
— How much is owed
— How long ago late payments occurred
— How many late payments you have
“Paying a few days after the due date won’t show up on your credit report,” says Sandberg. “You’ll have to skip an entire payment cycle for it to be reflected on your reports.”
If your score drops following a late payment, just move on and do better next month. You can recover your credit score by continuing to make on-time payments. The sooner you get your account current, the better it will be for your credit score.
Penalty APR
When you are more than 60 days late, your credit card issuer may increase your interest rate. This is what’s known as a penalty APR, and it can be as high as 29.99 percent. Issuers may keep the penalty APR in place for up to six months before reviewing your account to reduce the interest rate.
A penalty APR makes it more expensive to carry a balance. You’ll pay more for interest charges each month, so it can extend the amount of time it takes you to pay off your balance.
Credit card issuers were once permitted to increase your interest rate if you were delinquent on any other account, including accounts with other issuers. Federal law has eliminated this practice.
Generally, a late payment will cause you to lose any promotional rate on the card, such as a zero percent introductory APR on purchases and balance transfers. “One late payment will usually forfeit the deal,” says Sandberg.
Rewards
If you’ve earned rewards with your credit card, you may lose access to them while your payment is late. Typically, you can’t redeem rewards if your card isn’t in good standing.
[Read: Best No-Annual-Fee Credit Cards of 2018.]
“A creditor can freeze rewards on past-due accounts, reinstating only after the payments are caught up, and often with a reinstatement fee,” says Barry Paperno, former FICO consumer affairs manager.
Calculating Late Fees and Interest
Late fees and penalty interest can quickly add up. A $30 late payment will grow to $34.79 at 29.99 percent APR for six months.
If you have a balance, the damage can be even greater. You’ll pay $159.64 in interest over six months at 29.99 percent APR for a $1,000 balance. The same balance at a rate of 16.93 percent for six months has just over half the interest at $87.69.
How to Avoid Credit Card Late Fees and Penalties
The best way to avoid credit card late fees and penalties is to not make a late payment. Make it easier to complete payments on time with automatic payments, alerts and other tools , including:
— Custom payment due dates with all of your credit card payments due on the same date
— Text or email alerts
— Designated dates for paying bills each pay period
— A monthly bill payment calendar
[Read: The Best Starter Cards for Building Your Credit.]
If you plan to make automatic payments, make sure that you’re paying at least the minimum and that you have enough money in your bank account to make the payment. Most issuers charge a fee for payments returned due to insufficient funds, and a returned payment may push you past the due date.
There are credit cards that allow you to avoid some late fees. For example, Discover waives your first late fee, and the Citi Simplicity card has no late fees.
Waiving Fees
Some credit card issuers will waive fees and penalties if you ask. If you’re rarely or never late, contact your credit card company and ask it to waive the fee. If you’re late enough that the late payment has reached your credit report, you can request that the credit card issuer remove it. You should explain why it happened and point to your good history with the company. The issuer may say no, but it doesn’t hurt to ask.
If you’ve triggered a penalty interest rate, ask the issuer to review your account to determine if you can go back to your old rate. The company may be willing to do so after you make a certain number of on-time payments, such as three to four months.
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What Happens When You Pay Your Credit Card Late? originally appeared on usnews.com
