Missing credit card payments might not seem like a big deal to you, but your creditors don't feel the same way. While Mr. Visa might not call you the day or even week after your payment was due, he's certainly taking action behind the scenes. How your creditors respond to late payments can continue to affect you for months, and even years, to come.
Four Things Happen When You Pay Late
- Your creditor will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Late fees typically range from $15 to $35. You'll receive a late fee each month your payment is late.
- Your interest rate will increase if you're delinquent for 60 days. Creditors don't just penalize you with a fee, they'll often increase your interest rate to the default rate. This is the highest interest rate charged by a creditor usually as a penalty. The higher interest rate increases your finance charges making it more expensive to carry a balance. If you make six months of on-time payments, your card issue is required to give back your pre-penalty rate.
- The credit bureaus are notified when your payment is more than 30-days late. An entry is added to your credit report and will stay for seven years.
- Your credit score will drop. Because payment history makes up 35% of your credit score, late payments can have a significant effect on your score affecting your ability to get new credit in the future.
Late payments aren't reported to the credit bureau until after 30 days. So if you're under 30 days late, you can make the payment plus the late fee and avoid any damage to your credit report or credit score. Your credit card issuer may waive the fee for an accidental late payment if you ask nicely and as long as the late payment was isolated.
At 60 days late, your card issuer can raise your interest rate to the default or penalty rate. You can also lose any promotional interest rate you had at credit card signup. You may not be able to cash in your rewards if your card is delinquent. Worse, late payment may cause you to forfeit some or all of your rewards.
By the time your account is 180 days late, i.e. you've missed six payments, the card issuer will typically charge-off the account, writing it off as as a loss. The charge-off goes on your credit report and stays for seven years.
Late Payments and Your Credit Score
Late payment fees and higher interest rates are undesired results of late credit card payments. Perhaps, the effect you most want to avoid is a hit to your credit score. What does a late payment really do to your score?
According to Credit.com, the credit score calculation doesn't treat all late payments the same. While thirty- and sixty-day late payments affect your credit score more in the months they occur, they affect your credit score less as time passes. Ninety-day late payments, on the other hand, are more harmful to your credit score, especially you've had one within the past 24 months.This means...
- Missing one payment for one or two months won't be so bad for your credit score.
- Missing several payments for one or two months is worse.
- Missing a payment for three months just one time is just as bad as a charge-off or collection.