How Late Credit Card Payments Affect You

By BankBazaar | February 27, 2017

How Late Credit Card Payments Affect You

Credit Cards are tricky. On one hand, they increase your purchasing power. On the other, they have the potential to lead you into a debt spiral. One missed payment can take a huge toll on your financial health. After all, it’s the most expensive form of debt. Yet it sees a significant number of delayed repayments.

Additional Reading: Swipe right on these Credit Cards

Let’s understand the scenarios that lead to delayed repayments.

While some end up overspending, failing to make timely repayment due to insufficient funds, some simply get confused between the billing date and the payment due date.

People who are dependent on physical bills sometimes end up missing due dates due to postal delays.

Waiting until the last day to make the most of the interest-free period can result in a missed payment.

What happens if you miss the due date?

If you miss the due date entirely, you will be charged a late fee. Currently, the fee is charged if you fail to make the minimum payment within three days from the due date. The grace period is different for each Credit Card company.

On completion of the grace period, the late fee is added to the outstanding balance and the interest is charged upon the entire amount. Credit Card companies typically charge an interest of 2% to 3.5% per month on the due amount. Annualised, this rate of interest amounts to 24-40%.

Defaulting can also lead to a cancellation of the grace period until the outstanding bill amount is paid in full. Frequent defaulters can face a reduction in credit limit after a point and their Credit Score takes a hit.

A poor Credit Score can reduce your chances of getting loans or Credit Cards in future as it is often regarded as the parameter to assess a candidate’s credit history and repayment habits.

How to stick to the due date

You can set a standing instruction with your bank to clear the outstanding amount on the billing date so that the amount gets automatically debited from your account on the given date. You could also set an alarm or a reminder to get a notification before your due date.

We hope this helps!

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