If you are wondering: “What happens if I pay my credit card late?”, you are in the right place. Missing one of your credit card payments may not seem like a big deal, but watch out! Yes it is, at least one bigger than you think. And it is that, although the issuer of your credit card, or the bank, is not going to knock on the door for you to pay, this does not mean that he will not take action in this regard.
So much so that the way a bank responds to late payments from its customers could affect you for a very long timeand we are talking about months and even years.
For this reason, we have decided to answer the question of many: What happens if I pay my credit card late?
- 1 Consequences of late payment of a credit card
- 2 How are late payments related to credit score?
- 3 About the CARD Act of 2009
Consequences of late payment of a credit card
First of all, let’s start with a small parenthesis: what is considered paying the credit card late? Let’s see: credit cards work with periods or billing cycles, something that is also known in English as billing cycle. East billing cycle features:
- a start datewhich is when the bank or issuer begins to compile the movements you have made with your credit card.
- A closing date or closing date, which is the last day on which the bank will record the movements of that cycle. At midnight, he will issue his account status and close the billing.
- A payment due date or due date, which is the last day users have to pay their credit card. Normally, it is set 21 days after the statement issuance date.
- a grace periodwhich is the time that elapses from the closing date to the payment due date and that, on occasion, can double and take up to 50 days.
Any insufficient payment (less than the installment or minimum amount) or that is made after the payment due date is considered a delay. In case of not paying more, the client would be in default. But what happens then if the customer makes the credit card payment late?
#1 You will be charged a late fee
On your next statement, you’ll notice something slightly different than the rest: an additional charge that applies to all customers who are late on their payments. How much are we talking about? About $40, although the exact amount will depend on the bank’s late payment policy (or credit card issuer) and the recurrence of the event. For example, the bank will not charge you the same fee if you have two consecutive late payments in six months to one in a whole year.
#2 The issuer will increase your interest rate
If your payment is late for 60 days or more, it will not be enough for the issuer or bank to apply a surcharge: it will also penalize you by raising the interest rate on your card. Think that, at the beginning and depending on your credit score, you could get a card with an APR of 15%. But depending on the bank’s policies, the APR of this card varies from 13% to 22%, for example. By falling behind on your payments, you give the bank the perfect excuse to push that 15% interest to a higher rate, like 18%.
How does this affect you? Well, by having a higher interest rate, you will have to pay more in interest. And that’s not all. Depending on the terms of your credit card, purchases you’ve made after that penalty could be set at the higher rate.
Note: Keep in mind that a late payment on your card could also limit you from earning/collecting rewards and could even make you lose any promotional interest rates.As the 0% APR, for example. Any of these consequences will make it much more difficult for you to catch up on your debts.
#3 You will receive a note on your credit report
The economic consequences of paying your credit card late do not end there. When you are late on your card payment for more than 30 days, the bank or issuer sends a note to the country’s credit agencies. Then, your credit report will have a negative note that could last up to seven years.
Of course, this is one of the most serious consequences of being late with your card payment because, by having a lower credit score, you will lose the opportunity to access loans with a better interest rate and you could even perceive difficulties in getting a permanent job or renting a new apartment.
#4 It will lower your credit score
This point is related to the previous one. Because payment history accounts for 35% of your credit score, late payments can have a significant effect on your score. And when we say “significant” we mean “negative”. This will also affect your ability to get loans in the future.
If you think you’re safe because you have a good credit score, don’t be fooled! The higher your score, the more points you will lose for late payment on your card.
#5 You could lose your rewards
It doesn’t happen in all cases, but -depending on the bank- that late payment could cause you to lose some or all of the rewards you’ve accumulated so far. If your credit card generates redeemable points to book accommodation, eat at restaurants and bars, and buy airline tickets – and you’re a frequent flyer – this could be a devastating consequence for you.
#6 Losing the card is an option
Sure, it won’t happen because of a single delay. But if you already have 180 days without paying, you may be in breach of the conditions of use of your card. In summary? Well, the bank or issuer will cancel your card and you will lose it completely. This cancellation will also be included in your credit report and will be reflected for a maximum of seven years.
The charges for late payments and the application of the highest interest rate in the market are negative consequences, there is no doubt about that. But arguably the score on the credit report is worse.
How does paying the credit card late affect the credit score? According to a comparison made with the FICO Score, credit card delays hit hardest for people with good credit scores and no late payments. What else was discovered in this comparison? Let’s see it:
- Missing a payment isn’t as bad for your credit score as missing multiple payments over a month or two.
- Missing a payment in three months, that is, just once, is not as serious as card cancellation.
About the CARD Act of 2009
Previously, banks and issuers worked with a term known as universal default. What was this about? That if you missed a payment on one card, your other credit card issuers could also raise your interest rate based on the fact that you missed a payment on one of the cards you own.
The CARD Act of 2009 removed the application of universal non-compliance. Therefore, the issuer of your credit card You cannot increase your interest rate by arguing that you were late on another of your credit cards.
Now that you know what happens if the cardholder pays their credit card late, you’ll want to check the dates of your billing cycle and avoid any of these inconveniences.