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How to avoid​ a credit card late payment and stay financially healthy

Learn how to avoid a late credit card payment and prevent a negative mark on your credit history.

Chris Scott

Contributing Writer at Tally

September 17, 2020

More than a quarter of Americans have made a credit card late payment, resulting in more than $3 billion in late fees

Making a late payment on a credit card bill significantly impacts your credit. In this article, we outline everything you need to know about late credit card payments. We also cover a few things that you can do to improve your financial outlook if you’ve missed a payment on your credit report. 

What is a credit card late payment? 

Every month, you receive a credit card statement that shows your purchases from the previous 30 days. Your credit card company requires a minimum payment by a defined due date. The due date must be at least 21 days after you receive your statement with the amount owed. The time between when you receive your statement and the due date is known as the grace period. 

For instance, say you spend $600 on a credit card in August. On September 1, your statement reflects the $600 balance. Your credit card issuer requires a minimum payment of $25 by September 25. You have a 25-day grace period to make at least the minimum payment on your credit card balance. 

If you make the $25 minimum payment by the due date, you have made an on-time payment. You will still be charged interest on the remaining $575 balance, but you'll avoid late payment fees. 

If you were to miss the payment altogether or pay less than the $25 minimum amount, it’s a late payment. 

What happens when you make a credit card late payment? 

A credit card late payment triggers several repercussions. Here’s what to expect if you have a late credit card payment. 

Late fees kick in 

Once the grace period ends, your credit card issuer applies a late fee to your balance. This fee applies if you: 

  • Pay late

  • Pay less than the minimum

  • Don't pay any amount

Late fees vary from one issuer to the other, but they average around $36 and max out at $39. If it’s your first late payment, the late fee can't exceed $28. Some credit card companies waive the late fee when you miss a payment for the first time. If you miss two payments in six months, the late fee is $39. 

Keep in mind that the credit card issuer adds the late fee to your entire credit card debt, which incurs interest. 

For example, let’s again say you spend $600 on a credit card in August. You don’t make the minimum payment by the due date, and your credit card company issues a $36 late fee. 

Your outstanding balance is now $636. The lender applies this interest to the entire balance daily, which could quickly cause your debt to grow quickly — especially if you have a high annual percentage rate (APR). 

Penalty APR

Not only does the late fee collect interest, but the entire balance is subject to a higher interest rate known as the penalty APR. Credit card companies typically apply this penalty rate if you are more than 60 days late on a payment. 

Penalty APRs can be as high as 29.99%. Your credit card issuer must notify you in writing if it plans to apply the penalty rate. 

The penalty interest rate does not disappear after you make the minimum payment. Issuers may keep the penalty rate in place for up to six months before reviewing your account and determining whether to reduce it. 

A single missed payment often waives any promotional APRs. For instance, you may have received an offer of 0% APR for the first 18 months of card ownership. But if you miss a payment within these first 18 months, you will no longer be eligible for the 0% APR. 

Your credit score suffers 

Your credit score exemplifies your financial health and creditworthiness. FICO, one of the two major score types, indicates that 35% of the score is based on payment history. VantageScore, the other type of credit score, doesn't value payment history as much, but it still plays an important role. 

A late payment leads to a lower credit score — and it's not just a short-term consequence. Late payments stay on your credit report for seven years. Recent late payments have a greater impact than older missed payments. 

Fortunately, credit card companies don't report late payments to the three major credit bureaus (Experian, Equifax, and TransUnion) until the 30-day mark. If a payment is due on September 1, you typically have until September 30 to make a minimum payment before it affects your credit score. 

Suspended access to rewards 

The best credit cards will offer cash back or travel rewards. However, if you miss a payment, the credit card company will suspend your access to these rewards until you make the past due payment. Lenders may also require a reinstatement fee to regain access to your rewards. 

How to prevent a credit card late payment 

Even those who are diligent about their personal finances can slip up now and then. If you're concerned about missing a payment, there are a few steps you can take to prevent it.

Set up automatic payments 

Set up automatic monthly payments by linking directly to your bank account. You can also choose your due date each month. Automatic payments ensure timely payments — just remember that interest is still accruing on your remaining balance. 

If you only make minimum payments, compounding interest can make it difficult to pay off your debt. Always check your statement to know how much debt you’re accumulating. 

Also, your minimum required payment will change as your balance changes. Make sure you have enough in your bank account to cover the minimum payment. 

Set up reminders 

Today's credit card companies will send you text or email reminders when you receive a statement or have a due date approaching. Sign up for these alerts so you always know when you have a payment due. 

Use a balance transfer card

Another method you can use to avoid late payments is a balance transfer card. With this solution, you transfer all of your credit card balances onto one balance transfer card. There’s a balance transfer fee, but the amount is likely less than what you will eventually pay in late fees and penalty APRs. Once you have a single balance transfer card, you only need to make one monthly payment. 

​Use a line of credit service 

If you have several cards and struggle to keep track of multiple due dates, consider using a credit line service like Tally

Tally is a credit card payoff app that uses automation to help you save money and get out of debt faster. If you qualify, Tally gives you a low-interest line of credit and then uses it to pay your credit cards on time. 

Tally automatically pays down your credit card debt in the quickest and most efficient way possible to save you money. You only have to make one monthly payment to Tally.

It’s possible to avoid late payments 

Even if you can’t pay your credit card balance in full each month, always make the minimum monthly payment. Missing a payment can set off a ripple effect, resulting in higher interest rates and lower credit scores. 

Fortunately, there are solutions to ensure you make on-time payments. Set up reminders or automatic payments so you don’t have to keep track of your due dates. You can also use a balance transfer card or service like Tally to cut down on how many payments you must make. 

Missing a payment one time isn’t the end of the world. But routinely making credit card late payments can send you further into debt. With proper financial management, you can make sure that you never miss a credit card payment again.