Here's What Actually Happens When You Pay Your Credit Card Late

A stack of bills labeled “Past Due” and “Account Closed”

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When you owe money on a credit card, it's vital you pay your bill on time. Paying late can have both short-term and long-term consequences. You should understand both to see why it's so important to avoid even a single late payment.

1. Your credit score could go down

Payment history is one of the single most important factors that determines your credit score. In fact, payment history accounts for a full 35% of your FICO® Score. A late payment is a major red flag that you're not able to handle debt responsibly. That's why a single late payment could reduce a credit score of 780 down to as low as 670, or could reduce a credit score of 680 down to 600 according to myFico.

A lower credit score could mean you pay more for every loan you take out in the future. It could also mean you're denied for loans or that landlords won't want to rent to you out of fear you won't pay. Your credit score is used for almost any financial transaction you enter into, from car loans to utilities to cell phone contracts, and you don't want to do anything to jeopardize it.

2. You could get hit with a late payment fee

If you don't pay your card on time, your credit card issuer could end up charging you late fees. These fees are capped at $27 the first time you're late or $38 if you're late a second time in the next six months.

There's no reason to incur these costs. And, even if they don't seem that high, they can add up if you're late often.

3. Your interest rate could rise

Finally, there's another major consequence of making a late payment: Your credit card company could raise your interest rate.

In your credit card contract, your card issuer likely has a clause allowing them to raise your rate if you violate any of the card's terms and conditions. A late payment is a violation, so you could be charged a penalty rate or default rate as soon as you don't pay on time. This penalty rate is often around 29.99% but could vary by card issuer.  

If your interest rate goes way up and you're carrying a balance on your card, you'll pay a fortune in additional interest while the penalty rate is in effect. Typically, your creditor can continue to charge you this higher rate until you've made at least six on-time payments after the default.

You absolutely don't want to end up causing your credit card rate to go up when you owe money on your card. If you carry a balance, it's imperative not to pay late and give your card issuer an excuse to charge so much interest.

Don't pay your bills late

With so many serious consequences if you pay your credit card bill late, it's important to avoid this error.

You can ensure an accidental late payment doesn't have a negative effect on your finances by setting up automated payments for at least the minimums. Many credit card companies, and mobile apps such as Mint, also allow you to set up notifications on your phone or text messages to alert you when a bill is coming due.

Whatever approach you take, it's worth making the effort to ensure your bills are always paid on time.

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