Nobody’s perfect. Maybe you went on vacation and didn’t know you had to pay your credit card bill. You may not have received your invoice in the mail. Or maybe you just didn’t have enough money this month to make the minimum credit card payment.
How bad can it be to miss or be late on one credit card payment? It’s not the end of the world, and it’s not even your merit. But it can cost you late fees, higher interest rates, and a lowering of your credit score. That’s what’s happening.
What happens if you miss a credit card payment?
The possible consequences of not paying on a credit card can be many, and none of them are good. The following are the consequences of late payment:
You receive a late payment penalty
The first thing that happens when you miss a credit card payment is that you are charged a late payment fee. By law, your first late fee can be up to $28 or your minimum payment, whichever is less. You may be charged late fees on the first day of your overdue minimum payment.
Credit card companies charge varying late fees, up to the legal limit, depending on the card you have and your credit card agreement. Check your agreement to be sure, or look for “prices and conditions” on your bank’s website.
If you are late again within the next six billing cycles, things will get worse. By law, your second late or missed payment can cost you up to $40, although it still can’t exceed your minimum payment.
This is a good incentive not to miss the minimum payments. For example, if it was hard to pay $28 a month, it’s even harder to catch up on a payment plus a late fee of up to $28.
Your credit score is dropping
If your payment is only a few days late, your credit report will not be affected.
“If it’s less than 30 days, it’s OK,” says Cheyne Steiner, CEO of Crediful.
However, once it reaches the 30-day mark and is reported to the credit bureaus, the damage can be significant. Steiner says, “Your credit score could drop more than 100 points.”
The damage done by one negative mark on an impeccable credit history is enormous. Think of it like the first scratch on a new car – it shows up more often than in a long list of negative reviews.
“Many people don’t realize the negative consequences of a single payment that is more than 30 days past due,” says Steiner. “Not only will this hurt their credit score, but it will remain on their credit report for seven years.”
Not everyone is affected by the same late payment on their credit report.
“We report to approximately 220 million people, and each one is unique,” says Rod Griffin, director of consumer education at Experian. “The closer you are to perfection, the further you have to fall. A person with bad grades is less likely to fall.”
However, this smaller drop may affect someone more if they start with a lower score or if their score is closer to the cutoff point.
“If you score 840 points and your score drops 50 points, you are more likely to get better terms and better rates,” says Griffin. “Influence is also relative. If your score is 700 and you lose 20 points, you are at 680, you may or may not still qualify and you may have to pay higher rates.”
One thing is for sure – just one missed payment will negatively affect your account.
“With late payments, that’s between 30% and 40% of your estimate,” says Griffin. “It’s the single most important factor in a credit score.”
Your interest rate goes up
If you are more than 60 days late on your credit card payment, your bank may increase the interest rate on your account. Now you pay higher interest costs on that balance you can’t get rid of. Between late payments, missed payments, and higher interest rates, that balance can grow at an alarming rate.
In times of global default, you could miss a payment on one card, and all of a sudden the interest rates on all your credit cards could go up. Universal default was ended by the federal credit card act of 2009.
Interest rates on existing balances on your other credit card accounts that you have remained current may not go up without notice due to this missed payment. However, credit card companies may raise your rate with 45 days’ notice and allow you to pay off the balance on the old terms.
If your credit score worsens, you may also have trouble getting a new loan, or you may have to pay a higher interest rate when you do so.
My payment is overdue. What can I do?
If your minimum credit card payment is past due, don’t panic. Make the payment as quickly as possible and contact your lender to see if they will remove any negative marks on your credit report.
Griffin says if you’ve never had any other issues with them, they may very well have.
“Even if they don’t, if you have a strong credit history, it will rebound,” he says.
If you’re contesting a late payment or have extenuating circumstances—for example, if you’re having a problem with online banking payments—you can always add a statement to your credit file and tell your side of the story. Please provide documentation if possible.
“It can help, especially if it’s a large transaction,” Griffin says.
The most important thing you can do after one late payment is to immediately start building your good credit history again.
There are some things you can do to improve your score right away, such as paying off debt to lower your credit utilization rate, or diversifying the types of loans you use. Don’t spend money or go into debt just to improve your credit. You can get a loan simply by making small purchases with your credit card and paying off the balance each month.
You can also add positive information to your credit report to help offset a negative score. In the past, utilities and some other lenders only reported to credit bureaus when something went wrong. You didn’t get any credit when everything went right.
Now, with services like Experian Boost, you can get positive utility bill and mobile phone information on your credit score.
Clearing your credit history of negative marks in the future is not difficult if you dedicate time every month to taking care of your finances. Make sure you know when your credit card is due and send your payment at least a week in advance.
Consider setting up auto-payment, either for the full amount or the minimum amount each month, so you know you’ll never miss a payment. If you have too many credit card payments to keep track of, you may want to simplify your finances by closing one or more of them. Find a system that works for you.
“Even something as simple as a checklist to make sure all payments have been made is useful,” says Steiner.
Never assume that if you already have less than perfect credit, the game is over and another late payment won’t matter.
“It certainly matters,” Griffin says. “In order to restore or rehabilitate your story, every positive information and every negative information is important. Just one late payment will take you longer to recover your history.”
bottom line
Each month, new information, good and bad, can be added to your credit report. A newer payment history has a greater impact on your credit score than an older payment history, and late payments eventually disappear from your credit report entirely.
The impact of new negative information isn’t just about how your credit score is going down now. The fact is that since it is new, it increases the time it takes to age and fade.
From now on, check your credit report regularly to know what is on it. You can check your credit report for free at AnnualCreditReport.com, so there’s no reason not to.
“We remain frustrated with the number of people who are requesting the report,” Griffin says. “Less than half of the people who qualify for a free report request one. Everyone should get their report and know what’s in it.
“Your credit history is not like school history books. You can change this. Just because your credit score is messed up doesn’t mean you can’t fix it, Griffin says.
Try to avoid late payments on your credit history. But if it does, don’t take it personally and don’t give up. Take steps to prevent this from happening again, and then move on with your life.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
