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You might think that falling behind on your credit card payment every once in a while isn't a big deal. After all, you plan to catch up on payday. Or maybe the due date just slipped your mind. But the idea that the occasional late payment doesn't matter is a credit card myth. In fact, there are five ways that making a late payment on your credit card could hurt you.
1. Late Fees
If you miss your due date by even one day, a late fee can kick in and cost you extra money. The price of missing even one payments varies, but it could be around $30, for example. And if you continue missing payments, those late fees will climb.
If you've always paid on time in the past, you might be able to convince your card issuer to waive a late fee as a courtesy the first time it happens. But if you make repeated late payments, there's typically nothing you can do to get out of paying them.
2. Default Interest
If you fall 60 days behind on your credit card payment, your card issuer may increase the annual percentage rate on your account to the default interest rate (also called the penalty APR). Default interest rates vary, but yours should be disclosed in the credit card agreement you received when you opened your credit card account.
Default interest rates apply to future purchases you make on your account. And your card issuer may also apply the new, higher APR to your existing balance as well. This action is called a retroactive rate increase.
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The CARD Act of 2009 limited the ability of credit card companies to make retroactive rate hikes on customers. But when you fall behind on your credit card bill, those protections may go away.
On a positive note, if you catch up on your bill and pay on time for six months in a row, your card issuer will have to reduce your APR on your existing balance. For future purchases, however, it's up to the card issuer to decide whether to keep the penalty APR in place, or offer you a lower rate.
Quick Tip
Business credit cards may have different rules regarding default interest. These cards offer many perks to small business owners, but CARD Act regulations don’t apply to them.
3. Account Closure
Once you miss enough payments, an issuing bank may decide to close your credit card altogether. If this happens, you'll still owe any outstanding balance, but you will no longer be able to use your credit card for future purchases.
With many card issuers, account closure happens around the 90-day past due mark. But card issuers can close your credit card at their discretion.
Having your account closed is a credit card mistake you want to avoid, especially with rewards cards. If a card issuer closes your account due to late payments, you could lose any points and miles you earned.
There's no set-in-stone rule that dictates how late you can be before you face an account closure. So, your best bet is to do everything in your power to make your payments on time.
4. Negative Credit Reporting
One of the longest-lasting consequences of paying your credit card late is the negative impact it can have on your credit history. When you fall 30 days behind on your payment, your card issuer may report the account as late to the major credit bureaus—Equifax, TransUnion and Experian.
Note that if you're only a few days or even a few weeks late on your bill, your credit shouldn't be damaged yet. However, you are in the danger zone.
Once you fall more than 90 days behind on your credit card bill, there's a risk that your credit card company might sell your debt to a collection agency. If that happens, a new collection account may show up on your credit report. At that point, your credit could suffer twice—once for the late payments on the original account and again when the derogatory collection account appears on your report.
According to the Fair Credit Reporting Act (FCRA), late payments can remain on your credit report for up to seven years. Collection accounts also have a seven-year credit reporting limit—starting from the date of first delinquency on the original account.
Equifax, Experian and TransUnion Now Offer Free Weekly Credit Reports—Permanently
5. Credit Score Damage
A full 35% of your FICO® Score is based on the payment history that appears on your credit report. When late payment notations show up on your credit report, your credit score could take a significant hit.
A single 30-day late payment has the potential to damage your credit score. And the more severe a late payment becomes (such as 60 or 90 days late), the worse the impact on your credit score may be.
Ideally, you want to catch up any late payments before they reach charge-off status. If your card issuer charges off your debt or sells it to a third-party debt collector, the credit score impact can be extreme.
How Multiple Credit Card Payments a Month Can Boost Your Credit Score
Bottom Line
Whenever possible, do what you can to avoid paying your credit card late. If you've gotten busy and are forgetting to make payments, try setting up automatic payment. If finances are tight, paying at least the minimum amount due can help you avoid late fees and credit score damage.
In the long run, your best bet is to pay down your credit card balances. Once you get to a place where you can pay your full statement balance every month, you can get the most out of your credit cards—avoiding interest, protecting your credit rating at the same time, and maybe taking advantage of some great credit card rewards.
FAQs
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How much you're charged for late fees depends on your credit card provider, but late fees are often around $30-$35.
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Typically, credit reporting occurs 30 days or more after the payment deadline, providing an opportunity to rectify any late payments before they are reflected on credit reports. Some lenders and creditors may not report late payments until they reach 60 days past due.
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Payment history is a crucial factor in credit approval decisions by banks and issuers. An on-time payment history suggests trustworthiness and reliability, while a history of missed payments makes you more of a liability in the eyes of credit issuers. This is why late payments significantly impact your credit.
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According to Equifax.com, a record of late payments stays on your credit report for a maximum of seven years. Even when you pay off the past-due balance, the late payment will still be reflected negatively on your credit report.
Michelle Lambright Black
Michelle Black is founder of CreditWriter.com and HerCreditMatters.com. Michelle is a leading credit card journalist with over a decade and a half of experience in the financial industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting, small business, and debt eradication. Michelle is also a certified credit expert witness and personal finance writer.
