The Consequences of Making a Late Credit Card Payment

a man reads past due bill notice
••• Jupiterimages / Stockbyte / Getty

Missing a credit card payment is a bigger deal than you might think. Your credit card company won't show up at your door after you miss a payment, but they're definitely taking action behind the scenes. How your creditors respond to late payments can continue to affect you for months, and even years, to come. Knowing the consequences of a late credit card payment should be enough to make you take extra effort to pay on time.

What Happens When You Pay Your Credit Card Bill Late

Your credit card payment is considered late if it's received after the cutoff time on the due date or if it's less than the minimum amount due. Here's what will happen if your credit card payment is late.

Your creditor will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Late fees can be as high as $39, depending on your credit card's late fee policy and whether it's your first time being late in the past six months. You'll be charged a late fee each month your payment is late or less than the minimum payment.

Your interest rate will increase if you payment becomes 60 days past due. Creditors don't just penalize you with a late fee, they'll often increase your interest rate to the penalty rate, the highest interest rate on your credit card. The higher interest rate increases your finance charges making it more expensive to carry a balance and extending the amount of time it takes to pay off your balance.

If you make six months of on-time payments, your card issuer is required to give back your pre-penalty rate, but only for your previous balance.

Depending on your credit card terms, purchases made after the penalty rate became effective may still receive the higher rate. You can also lose any promotional interest rate you had a credit card signup. You may not be able to cash in your rewards if your card is delinquent.

Some credit card issuers don't apply a penalty rate. Check your credit card terms to see a list of fees associated with your credit card.

The late payment is added to your credit report when your payment is more than 30 days late. An entry is added to your credit report and can stay for seven years. If you miss the next payment, the entry is updated to 60 days, and so on in 30-day increments until your account is charged-off after 180 days.

Your credit score may drop. Because payment history makes up 35 percent of your credit score, late payments can have a significant effect on your score, affecting your ability to get new credit in the future. How much your credit score drops after a late payment depends on the other information in your credit score - generally, the better your credit, the more points you stand to lose.

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 and as long as the late payment was isolated.

You may lose your credit card rewards. Late payment may cause you to forfeit some or all of the rewards you've accumulated.

Late payments can spiral into credit card default. 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 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 negative 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?

How a late payment affects your credit score depends on the other information in your credit report. A FICO Credit Problem Comparison shows that late payments affect someone with a higher credit score and no previous late payments more than someone with a lower credit score and previous late payments. We also know that:

  • 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.

No More Universal Default

The Credit CARD Act of 2009 has banned universal default, so your credit card issuer is not allowed to increase your interest rate when you are late on a payment to another credit card issuer.

Credit card issuers are allowed to apply the penalty rate to other credit cards balances you hold with their bank.