Consumer Comeback Blog

The Surprising Costs of Late Payments: Credit Scores, Fees, and More

Written by Jeffrey Trull

calendar-late-payment-creditIf you think being late on a credit card payment isn’t a big deal, you’re in for a surprise.

Being late, even just once, can cost fees and interest, and the damage to your credit can be high. While some of these effects are immediate, others last months or years into the future.

Don’t be lax with payments on your credit card. Even if you’re late just one time, expect these consequences.

Credit score downgrade

The long-lasting damage from a late payment comes from the impact on your credit score. While a lower credit score doesn’t always cost money right away, the difference between borrowing money with a good and bad credit score can be significant.

In an example from myFICO, the impact of just one late payment can lead to a big credit score drop. Someone with a score of 680 and a riskier credit profile could see a loss of 60-80 points for the first late payment.

For someone with an excellent credit score of 780, the news is actually worse, with a potential drop of 90-110 points.

Keep in mind that these are only examples and the actual impact will vary based on many different factors, including:

  • Other past credit problems, including previous late payments
  • Length of credit history
  • Utilization of credit on accounts

The long-term effects of a late payment depend on several factors, too. More recent late payments have a greater impact than ones that occurred years ago. While all late payments will stay on your credit for seven years, those that happened long in the past might have little to no effect on your current credit score.

However, it’s not all bad news with late payments and the effect on credit scores. If your payment is only a few days late, your creditor might not report it to credit bureaus at all as many card issuers don’t report late payments until they’re at least 30 days past due. While fees and interest charges might still apply in these situations, your credit score might be safe.

Lenders can be lenient, too, especially if you have a history of on-time payments. You may be able to have the late payment removed from your credit by the lender just by explaining the situation to customer service and pointing out your good record in the past.

Late fees

The most immediate impact you’ll feel from making a late payment a late fee. If your payment is even a day late, you’re subject to late charges. These fees can cost up to $25 each time they happen, with fees increasing to $35 for those who have more than one late payment within six billing cycles.

Interest rate increase

In addition to late fees, increased interest rates can start costing you more money soon after you’ve failed to pay your bill on time.

Credit card issuers can increase already-high interest rates to the penalty APRs. With just one late payment, credit card issuers can start charging higher interest rates on new purchases. While they must give 45 days notice before this goes into effect, oftentimes rates can end up around 30% APR. You’ll likely be stuck with this rate for at least six billing periods, when the CARD Act requires issuers to review your account and consider dropping your rate.

If your payment is 60 days late or more, even more punitive changes to your interest rate can go into effect. In this case, issuers are allowed to increase the APR on your current balances to the penalty rate.

Rewards

Late payments can affect the rewards earned on your card, too. For American Express cards, rewards may be taken away for any billing cycle where a payment isn’t made on time. American Express says you can get the points back, but it will cost $35 for each month of points. Other card issuers have similar rules, so don’t assume your miles and other rewards are safe.

Avoiding late payments

While missing the payment due date might just be a one-time oversight, you can take some steps to make sure it doesn’t happen again.

Consider setting up automatic payments for your account. Even just making sure you pay the minimum amount due is enough to avoid the penalties from a late payment.

You can also set up alerts from your online accounts to let you know when the due date is approaching. You can pay early and make multiple payments just to make sure you’re not paying late.

If you are hit with a late fee for the first time, try asking customer service to have it removed. Sometimes you just need to call and ask, and you may have some luck.

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