What are the consequences of a late payment on a credit card?

Credit cards will generally require you to make some form of minimum payment on your balance at the end of your billing cycle each month. It is heavily recommended that you make these payments in  timely manner, and if at all possible to pay off the entirety of your balance each month to avoid paying interest. What will happen however if you do end up missing a payment or end up paying late?

There are three main ways a late or missed payment can impact you financially:

  • You can be charged late payment fees
  • You may face having the interest rate on your card raised to the penalty rate
  • Your late payment may be added to your credit history and can end up affecting your credit score

Let's take a look at the financial consequences of each of these results, when they occur and what you need to know.

Late Payment Fees

Most credit card agreements have specific fees that will be charged when you are late paying your monthly statement. The amount charged will typically range from $15 to $35 with the amount based on the size of your balance. For smaller monthly balances under a few hundred dollars, this can be a substantial percentage of your balance. A single late payment fee will cost you as much as paying a full year of interest on that balance. A few credit cards like the Citi Simplicity do not charge a late payment fee while the Discover It card absolves you from the late payment fee on your first late payment. Of the three potential downsides of paying late, the penalty fee has the shortest consequences. It's simply a one time charge.

 Screenshot of late payment fee in agreement

Sample of Late Payment Penalty Fees in Agreement

What can you do about it?

If it's your first missed payment consider contacting the company to see if they might waive the late fee. While there's no guarantee, card companies can sometimes be flexible about fees for customers that have generally been in good standing historically. There's a possibility that they'll work with you to have this charge removed.

Higher Interest Rates from Penalty APR

Credit card companies are generally prohibited from selectively raising the interest rate on your personal credit card without giving you 45 days notice and can only do so after the first year. (Note: if your card has a variable interest rate, the actual rate may rise if the Prime rate changes since the APR you offered is actually the Prime rate + some %)

One major exception to this is if you end up being more than 60 days late on a credit card payment. In this case many cards will switch your card APR from the rate you initially agreed upon to the penalty or default APR. The penalty APR will be significantly higher than the regular interest rate you were paying on your card with most companies pegging this rate at 27 - 30%. 

The problem with having the penalty rate applied to your card is that most card agreements stipulate that this rate can continue to apply indefinitely going forward. This means that this will have long term consequences on how much keeping a balance on your card will cost in the future. Not all credit cards apply a penalty rate, so it's a good practice to examine the full extent of your credit card agreement to get an understanding of if this will occur. The aforementioned cards the Discover IT and Citi Simplicity are two such cards that won't adjust your interest rate for being late.

Image of Penalty APR Excerpt

Penalty APR in a Credit Card Agreement

Recovering your original purchase APR

Making continued payments on time is the only way to get the application of the penalty rate removed. You'll need to pay 6 consecutive billing periods on time to have your interest rate reverted back to the original offer. 

Impact To Your Credit Report and Credit Score

While the late fee is a one time payment and the penalty APR will generally only apply to that card alone, late payments of more than 30 days are reported to the credit bureaus and will be reflected on your credit report. 35% of your credit score is based upon your payment history, or rather the lack of having negative information on your payment history. Late payments on your credit history will reduce your credit score. The size of the reduction will depend upon a few factors including how often you've missed payments and what your score was previously. 

A lower credit score will impact the likelihood that you will be approved for a credit card, mortgage or loan in the future. It can also determine the interest rate that you will be pay fi you do end up getting approved with higher interest rates associated with a lower credit score. Late payments on a credit report are also classified by the amount of time these payments are delinquent with longer durations having a greater impact on your creditworthiness.

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