Credit cards can be a useful tool to cover expenses in a cash crunch or just to avoid carrying too much cash with you when out and about. However, the bill for your bill must be paid monthly or you can risk a small purchase that will cost more than you sold.
When life gets busy 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 the way forward to avoid the situation getting worse than it needs to be. There are some simple steps to take to resolve the situation and get your payments back on track without a lot of extra ado.
What to do if you can’t make a credit card payment
The first thing you want to do when you check your balance and see a notice that is “overdue” in your payment history is not to panic but to act quickly. First of all, if you can, pay off your balance in full. If your finances are small, at least try to make the minimum payment immediately.
The sooner you receive payment from your creditor the less damage will come from a late payment. This can include late charges, increased interest and lowering your credit score.
You may also want to contact your credit card company. While you may be charged late fees for non-payment, if you are good and this is your first time, you can tell the customer service representative to ignore it. Don’t hold your breath, but it never hurts to try.
What happens if you are late on a credit card payment?
Besides incurring additional unwanted costs through late payments and higher interest on your balance, Your credit score is most at risk if you don’t pay your bill on time. Fortunately, if you miss a payment but manage to pay off your balance before 30 days have passed, it won’t show up on your credit reports.
But, at the last point, every additional 30 days you miss a payment will further knock down your credit score. This is important because payment history makes up 35 percent of the FICO Score model, meaning late payments can drag you down quickly. Also, the higher your credit score the more you will be penalized.
If your financial institution stops trying to pay you, they will delegate the job of debt recovery to a collection agency. This will further damage your credit score. This usually happens after six months but there is no set rule and it is up to your credit card company when they will call a debt collector.
Late fees for unpaid credit card payments
The simple fact of missing a payment has two automatic consequences a late payment and an increase in the interest rate. The former is usually between $20 and $40, but there are limits set by law.
Under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) the first late payment fee will not exceed $30 in January 2022. However, if after that late payment you make another late payment within the next six billing cycles, your credit card company may charge you up to $41 for each subsequent late payment.
But a late fee cannot be more than the minimum payment due on the account. The late fee cap is adjusted annually by the Consumer Financial Protection Bureau (CFPB).
Higher APR interest rate for credit card defaults
Missing a credit card payment can also see your interest rate jump. Your financial institution may apply a penalty APR when you default that applies to future purchases. You may also lose any promotional interest rate programs you have with the issuer. During that time a higher interest rate can be applied to the rest of your balance.
Again, you’ll want to talk to your issuer’s customer service department see if you can get your interest rate back to a lower rate. Paying as soon as possible builds goodwill but there is no guarantee that it will be immediate. If they say no, try again after you’ve paid on time for a six-month period.
