Credit card late fees

A late payment fee is a special amount that a credit card issuer may charge if the cardholder fails to repay the agreed monthly amount. Late fees can threaten the borrower's credit rating and result in a higher interest rate.

Users who have not paid their cards on time will normally see a charge appear on their next statement. As a rule, late payment penalties are specified in the credit card agreement. This is a good reason to read all terms and conditions before you sign the documents and start using the card.

This article explores the concept of late payment penalties on your credit card, what they are, what they can entail, and how to avoid them.

What are late payment penalties on credit cards?

All credit cards obligate users to repay amounts spent. In most cases, cardholders make monthly payments to "keep the balance" and repay what is owed. However, if the payment is not made by the due date of the credit card bill, the user must pay a fee.

Late payment fees can vary from one credit provider to another: some charge fixed amounts, some charge a percentage of the unpaid bill (whichever is higher), and a very small portion charge nothing.

For example, the Citi Simplicity® card does not charge late payment penalties. As mentioned above, the card issuer will inform you of the charges and add them to your next statement, increasing the minimum payment due.

Understanding credit card late payment penalties

Although the idea of a late payment penalty may seem simple and fair in theory, it can create an endless chain of problems. You may not know that after a late payment, you will face a problem when the borrower increases the amount owed the next time.

If the next month the amount seems too high, the borrower ends up paying more than expected, resulting in a large sum of money. In addition, late payment penalties can have different levels. Sometimes they are staggered.

How do late payment penalties work?

When are payments late? Let's imagine a case where the payment date is set for the 29th of the month. On that day, the company expects to receive at least the minimum required payment. This day is considered the day when the money should be on the balance, and not just sent.

Many users make this kind of mistake, forgetting that the creditor considers only the day on which the funds are received as the payment date. A payment considered late can therefore cost a day. However, charges are generally lower for the first late payment.

In most cases, the difference between the first late payment and the next late payment is between $8 and $15. It goes without saying that late fees are charged only once per 30-day billing cycle (once a month). If a second delay occurs within 60 days, the fee increases.

Another key element of how late payment penalties work is that they depend on the length of time you fail to pay the amount due. If multiple successive billing cycles are not paid, the penalties increase. The exact amount of the penalty is determined by the credit company. Other consequences of late payment are described below.

Where can I find information about late payment penalties on credit cards?

In general, those using online banking facilities will see an increase in the minimum payment amount. The increase in payment due will appear on the statement in the tab containing the word "warning." It is the responsibility of the credit card issuer to indicate in this field any penalties charged to the user.

More generally, you should read your credit agreement carefully to understand what types of charges may apply and when.

Examples of late fees on credit cards

In addition to good advice and hard facts, it is always helpful to have an illustration of what late payment penalties look like and how to deal with them. This part of the article describes the mechanisms of action in some of the typical situations where a late payment penalty applies.

Staggering of charges

The amount of the penalty charge depends entirely on the terms and conditions of the card. Staggered charges are normally calculated based on the user's total balance. This system means that the higher the amount, the higher the fee.

For example, someone with a balance of $1,400 will only have to pay $15, while someone with a balance over $2,000 will have to pay a higher late fee, up to $30.

How do credit card fees accumulate?

Late fees have a well-known tendency to accumulate. For example, if your credit card balance is $600 and you pay late during the first billing cycle, the late fee will be $20. The total amount to be repaid also includes the APR, which should be 15%.

The debt is therefore more than $700. In the second cycle, that is, if the delay is 60 days, the fee doubles to $40 for each consecutive cycle.

Excessive late fees, a higher interest rate and, icing on the cake, the penalty APR, await bad payers if they ignore their repayment obligations for three consecutive months. The penalty APR can be as high as 15 percent.

Risk of credit rating deterioration

Second, one of the consequences of late payments can be a decline in FICO score. This can happen simply because your credit card issuer reports your activity to all major lenders, even if you have to report it to only two of them.

For example, when a payment is 30 days late, this silence on your part can cost you nearly 85 score points. The card issuer then sends the payment to the credit bureau. A single late payment can tarnish your credit file for 5 to 7 years, since banking institutions are required to report such incidents.

At the same time, a small delay of one or two days does not compare to the impact of a delay of about 30 days for a first late payment or at least 60 days. A delay of a few hours or a few days may go unreported by the card issuer, and what is more, the user may be completely forgiven.

Suffering penalties

A decent APR is a real headache. Anyone who has spent time looking for a credit card with a moderate interest rate knows this well. Now imagine that paying your credit card bill after the due date ruins the good APR you were looking for, turning it into its opposite. Moreover, those who benefit from an introductory period with a 0% interest rate lose this advantage.

It is a fact that defaulting on a credit card can not only hurt your credit rating, but also make it more difficult to repay the debt. At the end of the day, the question is whether the credit is worth it. So do what you can to pay on time and give the card issuer no reason to pay late fees.

How can I be exempt from late fees on a credit card?

Because late payments are a widespread problem in the United States and many cardholders are at risk of not paying, credit companies have found a way to be flexible in assessing fees. They distinguish between different circumstances and allow customers to be reimbursed for late fees.

Below is a brief guide on how to waive late payment penalties.

1. Pay the bill immediately

A late payment on a credit card will hurt your score if the due date has long passed. Since a late payment can lead to a drastic reduction in points, try to refund the minimum payment as soon as possible. In this case, reacting quickly is, without exaggeration, a panacea!

It prevents the accumulation of interest and protects credit from further deterioration. But the advantages of early repayment do not stop there. The issuer will certainly be more inclined to continue working with a customer who does not need ten reminders and can get back on track quickly.

2. Check to see if you have been charged late fees

Now that your conscience is clear and you have cleared a late payment, you need to check whether you have been officially charged late fees. Consult your credit statement to verify this information and see if you have been charged an APR.

Statements also indicate any changes in your status, including the presence of rewards, points, or access to exclusive features.

3. Contact your credit card issuer

Check whether you can waive late fees on your credit card in your particular case. It is best to contact customer service and explain, for example, that this is an atypical situation. Maintain respect and remember that the decision will be based on your credit profile and good credit history.

Do not hesitate to mention any difficulties you are going through, such as illness, divorce, or professional problems. The creditor will not charge anything if the delay is unintentional.

Again, emphasize that late payments are an exception to the rules. Creditors are not so lenient as to do this all the time.

How to avoid credit card late fees

We all have habits and can be prone to missing deadlines. When a payment is late or missed, it can be especially painful to realize how inconsiderate you have been. But you are not entirely lost. Fortunately, there are tips and tricks for avoiding late payments and cleaning up your credit.

P.S. If you are looking for a surefire way to avoid late payments, look for an issuer that does not charge late fees. Popular cards include the Petal® Cashback No Fees Visa card, several Discover It® cards with no first late fee, the Citi Simplicity® No Late Fees Ever card, and the Apple card with no fees.

Here is a list of useful ways.

Create a payment calendar

Automating payments through online banking or making them manually on a set schedule is one of the best tricks for overcoming credit amnesia and reducing constant minimums to their proper value. Smartphone reminders will also help you pay late credit card bills if they are not silent.

Keep track of the time of day

Knowing the exact time when you run out of time to pay your monthly credit is another key. This will save you money on last-minute payments, for example, if you have neglected step 1 and have not set up automatic payments. By keeping in mind the time of day that prevents you from paying on time, you can use this information to your advantage.

As a general rule, a company cannot request payment before 5 p.m., although the card issuer may set a different time. This means that you can send money as late as 5 p.m. if you know it will not take long to process.

On the other hand, some more lenient providers allow payments until midnight. In any case, this is something to check when signing the contract.

Plan B

What would you do if your main means of payment stopped working? For this type of emergency, plan another method: pay online, by phone, or choose another practical method you have already tried.

Beyond the charges: the consequences of non-payment

After reviewing your credit card agreement, it is critical to know the consequences of nonpayment and the impact it can have on your credit.

It is not just a matter of having to pay an additional amount for a late payment. Often the consequences of late payments include losing the benefits you were receiving from the issuer and losing the ability to get other loans, such as auto loans and mortgages, or to open new credit cards.

Let's go through these points one by one.

You risk losing your rewards

Credit card rewards are not easy to obtain, but they can be taken away if you pay late at least once. Giving up the benefits to which you were entitled is often more expensive than an extra twenty dollars or so at a time. Credit card issuers may eliminate the ability to redeem rewards or points for travel for users whose credit card accounts are in arrears.

Your credit rating may suffer

Worse yet, for some users, a late payment has the power to lower their credit rating. A delay of 180 days, equivalent to payments not made in the next six cycles, can lead to complete cancellation of the account or the application of debt collection proceedings. Companies record these accounts as losses, and the credit event remains on the credit report for up to 7 years.

You risk receiving a penalty on the APR

Who wants penalties on the APR? This is clearly another disadvantage, on par with the fees that users may incur. However, the credit company cannot legally raise the APR until there have been at least 60 days of late payments. This period is related to two consecutive billing cycles. In addition, the credit card law passed in 2009 abolished universal default.

This means that credit card companies can no longer raise the APR of users who have not paid other creditors on time.

It also means that a credit event can be removed from the user's profile. However, this law does not mean that rate increases can be easily avoided. The law also states that if a user has other credit card balances with the same company, a penalty may be imposed, even if the payments were made on time.

Conditions for fee waiver

The survey showed that nearly 82 percent of cardholders who applied for a fee waiver in the United States received it. In addition, some cards have an automatic fee waiver policy for all late payments made for the first time. The important thing is to ask for it without hesitation. Statistical data is then based on your credit file, including payment history.

However, some groups of people may qualify for fee waivers earlier than others. These are.

• parents of children under the age of 18
• young millennials
• people whose nonpayment is an isolated event
• users who have accidentally paid after the due date.
• Conclusion: don't just accept penalties for late credit card payments.

In conclusion, we would like to say that the devil is not as black as they say. Sure, you need to pay off your debts as quickly as possible and try to have an exemplary credit profile, with all payments made by the due date. But there is good news for those who think the credit card market is unfair with its penalties and pitfalls.

In 2023, the Consumer Financial Protection Bureau (CFPB) announced its proposal to reduce the overall amount of card fees. The document suggests a new amount of $8, compared to the current average of $41. In short, the fee cap is proposed to save customers money and ensure a competitive credit market. According to Rohit Chopra, director of the CFPB, it will prevent banks from "charging illegal fees."

Although criticized, the law should ensure that the credit card market is fair and that predatory practices do not develop. In 2009, the Credit Card Accountability Responsibility and Disclosure Act (CARD) was passed.

This law protects customers' cards and limits late fees and excessive APRs. For example, lenders are required to disclose in advance if a penalizing APR is charged.

FREQUENTLY ASKED QUESTIONS

How can I be exempt from late fees on a credit card?

The algorithm is simple. You must immediately pay the minimum amount on your credit card, check to see if the charges appear on your statement, and contact the issuer to request exemption from penalties. If you follow this procedure and pay at least the minimum amount, you will avoid late payment penalties and their effect on your credit.

What are the penalties for late payments on my credit card?

Although it depends on the credit institution, the usual charge for a late payment on a credit card is between $15 and $35. These charges are often followed by an increase in APR and a loss of benefits.

Do late payment charges on a credit card affect my credit rating?

Yes, if you have a habit of paying your credit card balance late, your credit card issuer may report each payment to lenders and announce that the account is in default, resulting in a significant drop in your credit rating.

How do late fees on credit cards work?

A credit institution may charge a late fee on the account of a user who fails to pay the minimum monthly balance on time. The first time, the late fee is lower than subsequent times. However, a late payment made accidentally or under exceptional circumstances may be canceled.

Can a credit card charge late fees?

Recent changes allow credit card issuers to charge late payment interest, but you need to study your credit agreement to know the answer to a specific situation.

What affects my credit score?

Your credit score is affected by factors such as amounts owed (30%), payment history (35%), length of credit history (15%), new credit (10%), and combination of credit (10%). It is your responsibility to check your credit score and credit report, as a cancelled late payment may or may not be approved but may not appear on your report.

Written by

Jonah Collins

Loans, Mortgage

Jonah Collins is a personal loans writer for Finwower. Backed by Master's of Science in Finance from Bournemouth University, he has hands-on experience as an investor and trader, along with editing and writing experience in finance, investments.

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