The Consequences of Making a Late Credit Card Payment
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 $40, 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 your 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. A late payment may cause you to forfeit some or all of the rewards you've accumulated. At a minimum, you may be unable to redeem rewards if your account is past due.
Late payments can spiral into credit card default. By the time your account is 180 days late—that is, you've missed six payments in a row—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 just two negative results of late credit card payments. Perhaps, the effect you most want to avoid is a hit to your credit score. The impact to your 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
When late payments appear on your credit reports, it is possible to remove them, but you must negotiate with the credit card company to remove them.
Credit card issuers are allowed to apply the penalty rate to other credit card balances you hold with their bank even if those payments are on time.
Office of the Comptroller of the Currency. "Answers About Credit Card Payments and Late Payments." Accessed Aug. 31, 2020.
Discover. "What Happens If I Can't Pay My Credit Card?" Accessed Aug. 31, 2020.
Office of the Federal Register. "Safe Harbor Penalty Fees—§ 1026.52(b)(1)(ii)(A) and (B)." Accessed Aug. 31, 2020.
Consumer Financial Protection Bureau. "Truth in Lending Act—2(b)(2)(i) Fees That Exceed Dollar Amount Associated With Violation." Accessed Aug. 31, 2020.
Consumer Financial Protection Bureau. "The Card Issuer Increased My Interest Rate on My Existing Balance. Can They Do That? What Can I Do to Get the Rate Back Down?" Accessed Aug. 31, 2020.
Discover Bank. "What Does It Mean When My Credit Card is Past Due?" Accessed Aug. 31, 2020.
Consumer Financial Protection Bureau. "How to Find the Best Credit Card," Page 4. Accessed Aug. 31, 2020.
Consumer Financial Protection Bureau. "I Got a Credit Card Promising No Interest for a Purchase if I Pay in Full Within 12 Months. How Does This Work?" Accessed Aug. 31, 2020.
Capital One. "Capital One Application Terms." Accessed Aug. 31, 2020.
Wells Fargo. "Wells Fargo Cash Wise Visa® Card Terms and Conditions." Accessed Aug. 31, 2020.
Experian. "When Do Late Payments Get Reported?" Accessed Aug. 31, 2020.
FICO. "Payment History." Accessed Aug. 31, 2020.
Equifax. "When Does a Late Credit Card Payment Show Up on Credit Reports?" Accessed Aug. 31, 2020.
Discover. "How to Handle Credit Card Payments Like a Boss - 3. Pay On the Same Day Every Month." Accessed Aug. 31, 2020.
Equifax. "What Is a Charge-Off?" Accessed Aug. 31, 2020.
FICO. "How Credit Actions Impact FICO® Scores." Accessed Aug. 31, 2020.
Library of Congress. "Amending the Consumer Credit Protection Act, to Ban Abusive Credit Practices, Enhance Consumer Disclosures, Protect Underage Consumers, and for Other Purposes," Pages 4-5. Accessed Aug. 31, 2020.