Credit cards can be a useful tool to cover expenses in times of cash shortages or simply to avoid carrying a lot of cash on you when traveling. However, the bill for what you charge must be paid monthly or you could risk a small purchase becoming much more expensive than expected.
When life gets hectic or your finances are strained, you can miss a credit card payment. Don’t panic, but sit down to take a minute to figure out which way to go to prevent the situation from getting worse than it needs to be. There are a few simple steps you can take to remedy the situation and get your payments back on track without further ado.
What to do if you miss a credit card payment
The first thing you want to do if, when you check your balance and see a “late payment” notice on your payment history, is not to panic, but you will want to act immediately. First of all, if you can, pay your balance in full. If your finances are strained, at least try to make the minimum payment right away.
The sooner you can get payment from your creditor, the less damage a late payment will cause. This could include late fees, interest rate hikes, and a drop in your credit score.
You will also want to contact your credit card company. Although you will likely be charged late fees for the missed payment, if you are in good standing and it is your first time, you may be able to speak nicely to the customer service representative to opt out. Don’t hold your breath, but it never hurts to try.
What happens if you are late on a credit card payment?
In addition to incurring unwanted additional charges due to 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. Luckily, if you missed a payment but can pay off your balance before 30 days, it won’t show up on your credit reports.
However, past this point, every additional 30 days that you fail to make a payment will further reduce your credit score. This is important because payment history makes up 35% of the FICO Score model, which means late payments can cause yours to fall quickly. Also, the higher your credit score, the more you are penalized.
If your financial institution gives up trying to get you reimbursed, they will hand over the debt collection work to a collection agency. This would hurt your credit score even more. Typically this happens after six months, but there’s no set rule and it’s up to your credit card company to decide when to call a debt collector.
Late fees for missed credit card payments
Simply missing a payment will have two automatic consequences: late fees and an increased interest rate. The former is usually between $20 and $40, but there are limits set by law.
Under the Credit Card Accountability and Disclosure Act of 2009 (CARD Act) the first late payment fee cannot exceed $30 as of January 2022. However, if after this 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 late fees cannot exceed the minimum payment due on the account. The late fee cap is adjusted annually by the Consumer Financial Protection Bureau (CFPB).
Higher APR interest rates for missed credit card payments
Missing a credit card payment could also cause your interest rate to spike. Your financial institution may apply an APR penalty as soon as you missed 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 may also apply to the rest of your balance.
Again, you will want to speak to your transmitter’s customer service to see if you can bring your interest rate down to the lower rate. Making a payment as soon as possible will establish goodwill, but there’s no guarantee they’ll do it right away. If they say no, try again after making on-time payments over a six-month period.
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