Credit cards can be a useful tool to cover expenses when you’re short on cash or simply to avoid carrying a lot of cash on the go. however what you charge is billed monthly or you can risk a small purchase becoming much more expensive than you bargained for.
When life gets hectic or your finances are tight, you may miss a credit card payment. Don’t panic, but sit down to take a minute to figure out a way forward to avoid making the situation worse than it needs to be. There are a few simple steps you can take to rectify the situation and get your payments back without too much effort.
What to do if you miss a credit card payment
The first thing you want to do when you check your balance and see a “overdue” notice in your payment history is not to panic, but you want to take action right away. First and foremost, if you can, pay the balance in full. If your finances are stretched, at least try to make the minimum payment right away.
The sooner you can get payment to your creditor, the less damage you will suffer from a late payment. This could include late fees, interest rate hikes and lowering your credit score.
You’ll also want to contact your credit card company. Although you will likely be charged a late fee for a late payment, if you are in good standing and it is your first time, You may be able to talk the customer service rep into giving it up. Don’t hold your breath, but it never hurts to try.
What happens if you miss a credit card payment?
In addition to the unwanted additional costs of late fees and higher interest rates on your balance, your credit score is most at risk if you don’t pay your bill on time. Fortunately, if you’re late on a payment but can pay the balance before 30 days, it won’t show up on your credit reports.
After this point though every additional 30 days you don’t make a payment will lower your credit score even more. This is important because payment history makes up 35 percent of the FICO Score model, which means late payments can quickly lower your payment. in the same way the higher your credit score, the more penalties you receive.
If your financial institution refuses to try to get you to pay them back, they will hand over the debt recovery work to a collection agency. This will further damage your credit score. This is usually after six months, but there are no set rules and it depends on your credit card company when they will call a debt collector.
Late fees for late credit card payments
The simple fact of late payment will have two automatic consequences – a late fee and an increased interest rate. The first is usually between $20 and $40, but there are limits set by law.
Pursuant to the Credit Card Liability and Disclosure Act of 2009 (CARD Act) from January 2022, the late fee for the first payment may not exceed USD 30. However, if you make another late payment after this late payment within the next six billing cycles, your credit card company may charge you up to $41 for each subsequent late payment.
However, the late fee cannot be greater than the minimum payment to be made on the account. The late fee cap is adjusted annually by the Consumer Financial Protection Bureau (CFPB).
Higher APR interest rates on late credit card payments
If you miss a credit card payment, your interest rate may increase. Your financial institution may apply a penalty APR once you miss this payment, which would apply to future purchases. You may also lose any promotional interest rate program you had with the issuer. Over time, this higher interest rate could apply to the rest of your balance.
Again, you’ll want to talk to your issuer’s customer service department see if you can lower your interest rate to a lower rate. Making the payment as soon as possible will create goodwill, but there is no guarantee that it will be made immediately. If they say no, try again after you’ve made on-time payments over a six-month period.