It may happen in your life. You may be too busy, overburdened, or just forgetful at times. Missing a credit card payment might not seem like a big deal, but it can have major consequences if you don’t act right away.
What Does A Missed Payment Mean?
If you fail to pay at least the minimum amount owed on your credit card before the due date, it is considered a missed payment. It is officially a missed payment, even if you are only one day late.
Important Terms to Know:
Minimum Payment: The least amount you must pay each month to stay out of further extra penalties.
Due Date: The final day you can make a payment without being considered late.
Immediate Consequences of Missing Payment
When you don’t make your credit card payments, things start happening fast. Here’s what you can expect:
1. Late Fees: When a payment is missed, credit card companies usually charge a late fee. Depending on your card and whether this is your first missed payment, this cost may be anywhere between $25 and $40.
For example, your next bill may show a total of $90 ($50+ $40 late fee) if you fail to make the $50 minimum payment.
2. Interest Fees: Interest will begin to accrue on the outstanding debt if you don’t pay your full balance. With an average of 15-25%, credit card interest rates are frequently high.
For example, do you owe $1,000 with a 20% interest rate? You will owe an extra $16.67 for just one month of unpaid balance.
3. The End of the Grace Period: You can avoid paying interest on new purchases during the grace period offered by the majority of credit cards. You risk losing this benefit if you don’t make your payments on time, and interest will start to accrue on new purchases right away.
What Happens After 30 Days?
The scenario worsens if your payment is 30 days past due:
Reported to Credit Bureaus
- The three main credit bureaus—TransUnion, Equifax, and Experian—will be reported by the credit card company for your late payment.
- This report can hurt your credit score, particularly if you have a good credit score to begin with.
Impact on Credit Score
- Depending on your credit history, a single late payment can drop your credit score by 50-100 points.
- Late payments may remain on your credit report for up to 7 years, although their effects diminish with time.
Higher APR
- As a penalty, the interest rate (APR) on your credit card may go up. This is known as the penalty annual percentage rate, and it can reach up to 29.99%.
- Just a quick recap: Missing one payment for 30 days = late fees, a credit score drop, interest, and maybe increased interest rates.
What Happens After 60 Days Later?
The stakes increase if you miss two payments in a row:
- Double Late Fees: For the second month, you’ll likely be charged an additional late fee, which will double your penalty expenses.
- Higher Impact on Credit Score: Your account may be restricted by certain credit card companies, which would prevent you from using the card to make new purchases.
What Happens After 90+ Days Later?
The current state of affairs is critical.
1. Forwarded to Collections
- Your debt may be forwarded to a collection agency by your credit card company. This implies another company will contact you to recover the money you owe.
- One of the biggest red flags on your credit report is an account that is in collections.
2. Legal Action: To recover the debt, the credit card company or collection agency may, in extreme cases, file a lawsuit. Court costs and wage garnishment may result from this.
3. Permanent Credit Damage: Your credit score and report are permanently harmed by a 90-day late payment, which makes it more difficult to obtain loans, rent an apartment, or even secure some jobs.
How to Fix a Payment That Was Missed
The good news is that there is still time to act. What you can do is as follows:
- Pay as soon as possible: Pay the minimum amount or extra as quickly as possible, even if you’re late. You will suffer less harm if you pay sooner.
- Contact Your Credit Card Issuer: Speak to your credit card company and describe your situation. If this is your first missed payment, many companies will waive the late fee or arrange a payment plan.
- Configure Automatic Transfers: Set up automatic payments for at least the minimum amount owed to prevent future payment misses. You’ll always be on time if you do this.
- Dispute Mistakes: You can dispute the late payment with the credit bureaus or your credit card company if you think it was an error.
How to Prevent Missing Payments in the Future
The best course of action is to avoid missed payments. Here are some points:
- Create a Budget: Make a list of your monthly income and costs. Make sure you have enough money saved for your credit card bills.
- Make Use of Payment Reminders: To remind yourself of impending deadlines, use calendar notifications or utilize a budgeting tool.
- Make an Early Payment: Avoid waiting till the deadline. Paying early provides you with wiggle room in case something unexpected occurs.
- Keep Track of Multiple Cards: If you have many credit cards, use an app or spreadsheet to manage balances, minimum payments, and due dates.
The Big Picture: The Importance of On-Time Payments
Avoiding fees isn’t the only benefit of making your credit card payment on time. This impacts your entire financial future.
- Creates a High Credit Score: Making your payments on time accounts for 35% of your credit score, which is the main determinant of your score.
- Saves Money: You can save more money by avoiding penalty interest rates and late fees.
- Promotes Financial Independence: More financial options, reduced interest rates, and better loan terms are all made possible by having a high credit score.
Conclusion
If you don’t take quick action, missing a credit card payment could escalate into a more serious issue. Among the repercussions are late fees, increased interest rates, and harm to your credit score. The good news? By acting right away and putting procedures in place to prevent mistakes in the future, you can recover.
Keep in mind that as long as you get back on track, it’s okay to stumble. If you use your credit card responsibly, it will become an effective and powerful tool for building your financial future.
