How to Minimize the Impact of a Late Credit Card Payment
Even the most responsible people can sometimes miss a bill payment. Whether an established auto-pay didn’t go through, life just got hectic, or there was an extenuating circumstance, it can almost be an easy oversight. So, how can you minimize – or even correct – the damage caused by a late payment?
Here are seven ways that you can soften the impact on both your credit and your wallet, as well as go back and fix your past payment missteps.
Catch Up to Avoid Additional Interest
The very first thing you should do when you realize that you’ve missed a payment is log in and get yourself caught up. Whether you pay online or over the phone, you should bring your account to current as soon as possible (meaning, don’t waste time mailing a check!).
If you had planned to pay your statement balance in full (and avoid interest charges in the process), you’ll be sadly disappointed. Now, you’ll be charged interest on your balance for the days between your payment due date and the day you actually make your full payment.
If you were planning to pay less than your total statement balance, you were already anticipating interest charges. However, you’ll now pay more in interest – the amount of which depends on your payment amount and when you bring your account up to current.
Catch Up to Avoid a Negative Report
If you call and make a late payment shortly after the bill was due, you may be able to avoid it getting reported to the credit bureaus. Considering that negative reports will follow you for up to seven years, this is a pretty big reason to rush your late payment the moment you notice.
Each issuer handles the situation differently, but many credit card companies will wait to add your late payment as a negative report until you’re 30 or more days delinquent. If you can bring your account up to date before then, you have a chance at saving yourself from almost a decade of credit impacts.
Accounts that are two billing cycles late (60 days) will not only see the late payment notations on their credit report(s), but are also subject to penalty APRs. These higher-than-usual interest rates are typically charged for six months, following a 60-days-late payment. If you’re carrying a balance on your account, you’ll quickly notice the impact, too.
For instance, the average credit card APR right now is 13.6%, according to Value Penguin. The typical penalty APR, though? A whopping 29.99%, or more than double the normal rate.
By paying your balance before you reach this two-month mark, you can avoid triggering a penalty APR. This will, in turn, save you quite a bit of money, especially if you are carrying a balance month-to-month.
No matter what, though, you’ll still have the issue of late fees.
Call in a Favor
Late fees can be a pretty significant expense. Most issuers will charge somewhere between $25-30 per untimely payment, though there are some companies that go all the way up to the CFPB’s limit of $38.
While this amount isn’t likely to break the bank, it’s still extra cash out of your pocket. And if you were to have a situation that caused you to miss a few different card payments at the same time, you would pay a late fee with each and every one.
So, what can you do? Well, if you have a history of on-time payments and have been a loyal customer for a while, it’s a good idea to call in to customer service. Most companies will waive the late payment fee for good customers, sometimes as often as once a year. The worst they can say is No, so it’s definitely worth a try.
Use a Goodwill Letter for Past Late Payments
If you made a late payment (or string of payments) in the past due to an extenuating circumstance – such as a divorce, the loss of your job, an illness, or a death – you can try the goodwill letter route. This has the potential to remove past negative reports from your credit, immediately boosting your score and creditworthiness.
The idea behind the goodwill letter is to humbly ask the company to consider removing a negative report, like a late payment, from your credit as a gesture of kindness. This will usually only work if you had some circumstance that resulted in your late payment (you can’t just say that you forgot or couldn’t afford it), and can explain this to the issuer.
It’s also helpful if you’ve since demonstrated excellent credit habits. This means not carrying a high utilization and paying on-time each month since. If you want to learn more about goodwill letters and the impact they can have, here’s our guide.
Ask About Hardship Programs
If you’re in a difficult spot financially and think that you might have to skip a payment or two as a result… don’t! Your first course of action should be to call your credit card company and ask about a hardship program.
These programs aren’t advertised, but can be a way to reduce your minimum payment due to a manageable level, if you’re enduring a hardship of some kind. Your balance will continue to accrue interest and the account may actually even be closed to new charges, but this is still a much better option than making payments late.
If you think that you might be eligible, call your credit card company and ask for more information about a hardship program enrollment.
Avoid This in the Future
If you’ve recently made a late payment, you’re already in damage control mode. Moving forward, though, it’s important to ensure that you take all measures possible to avoid a late payment down the line. This might mean setting up auto-pay through accounts that didn’t previously have it. This way, you can ensure that the payment will be taken out of your account on time every time. Your issuer might even give you a break by waiving a late fee or two, if you agree to sign up for automatic payments.
If auto-pay isn’t an option, you can also set reminders in your calendar for bills. By making an “appointment” with yourself, you’ll make it difficult to ever forget a payment again.
Lastly, there’s one easy way to remove late payments on your credit report: dispute any that aren’t correct! Credit report inaccuracies are more common than most people think, and many are impacted by the effects of an errant late payment notation. If you notice one of these on your credit report and know for certain that it’s inaccurate, set about fixing the error.
Reach out to the card issuer first, as they can typically fix the problem quickly. Be sure to provide any evidence you may have, including emails or receipts for payment. If they’re unable or unwilling to help, you can reach out to the reporting credit bureau directly. All three bureaus offer online dispute filing, so correcting errors on your report is as simple as a few mouse clicks.
Late payments can stick with you (and your credit) for the better part of a decade. While the best course of action is to avoid them altogether, there are still some good options for damage control if it’s too late.