What Happens If You Miss a Credit Card Payment?

 

Credit cards are incredibly useful tools for managing finances, building credit, and earning rewards. However, they come with certain responsibilities, and one of the most critical of these is making timely payments. Missing a credit card payment can lead to immediate financial consequences and long-term damage to your credit health. Whether you forgot about the due date, experienced a cash flow problem, or simply overlooked the payment, it’s important to understand what happens when you miss a credit card payment.

In this comprehensive guide, we'll discuss the different repercussions of missing a payment, from late fees to potential damage to your credit score. We’ll also explore how to minimize the fallout and provide actionable steps for dealing with missed payments to protect your financial well-being.

1. Late Fees Will Be Charged

When you miss a payment, one of the first consequences you’ll face is a late fee. Credit card issuers charge late fees as a penalty for not paying on time.

Why it Happens

Credit card companies charge late fees to encourage timely payments and to offset the administrative costs they incur when a payment is missed. The amount of the fee will vary depending on the issuer, your account’s terms, and whether this is your first missed payment.

How Much is the Fee?

Late fees typically range from $25 to $40. If it’s your first time missing a payment, the fee may be on the lower end of that spectrum. However, subsequent late payments can trigger higher fees, especially if they continue to occur.

Some credit card companies may also offer a grace period during which they won't charge a late fee if you make the payment within a few days of the due date. It’s always a good idea to check the fine print of your credit card terms to see if your card offers such a benefit.

Tip to Minimize Late Fees

If this is your first missed payment or if you have a good history with the card issuer, you can sometimes call them and ask for the fee to be waived. While this isn't guaranteed, many companies will be willing to work with you, especially if you explain that this was a one-time oversight.

2. Interest Charges Can Add Up

Another significant consequence of missing a payment is the accumulation of interest charges. Credit cards generally come with high-interest rates, which means missing a payment can make an outstanding balance even more expensive.

Why It Happens

Credit card issuers typically charge interest on any balance that you carry beyond the due date. Once a payment is missed, interest can quickly start to accumulate, increasing your total debt. The amount of interest will depend on your APR (Annual Percentage Rate), which is the interest rate charged on an annual basis for carrying a balance.

APR and Interest Calculation

If you miss a payment, the issuer may charge you interest on the total balance, not just the amount remaining after the missed payment. For example, if you carry a $500 balance and miss a payment, the interest charge will apply to the entire $500, making it more expensive to pay off.

Credit cards often have variable APRs, meaning the interest rate can change depending on market conditions. The interest rate can increase significantly if you miss a payment, making it even harder to pay off your balance.

Tip to Avoid High Interest Charges

If possible, pay off the full balance immediately or as soon as you can. This will prevent interest from compounding and adding to your debt. Even if you can’t pay the full balance, try to make at least the minimum payment to reduce the amount that will accrue interest.

3. Your Credit Score Can Suffer

Perhaps the most long-lasting consequence of missing a credit card payment is the impact on your credit score. Your credit score is a reflection of how well you manage your credit, and a missed payment can have a substantial negative effect.

Why It Happens

Credit scores are largely influenced by your payment history, which makes up 35% of your FICO score. When you miss a payment, the issuer will typically report this to the three major credit bureaus—Experian, TransUnion, and Equifax—once your payment is more than 30 days past due. This can lead to a significant drop in your credit score.

The more time that passes without a payment, the more severe the impact can be. For example, a payment that is 60 days past due is likely to affect your credit score more than one that is 30 days past due.

The Impact on Your Credit Score

A missed payment can reduce your credit score by 50 to 100 points or more, depending on your credit history. If your credit score drops significantly, it could result in higher interest rates on loans and credit cards in the future, making it more expensive to borrow money.

Tip to Protect Your Credit Score

To minimize the damage to your credit score, make the payment as soon as you can. If the payment is less than 30 days late, there’s a chance that your credit issuer won’t report it to the bureaus. If it’s been longer, try to bring your account current as soon as possible and avoid any further missed payments.

4. Your Interest Rate May Increase

Many credit card issuers impose a penalty APR if you miss a payment. This penalty APR can be much higher than the standard APR for your credit card and can make it much more expensive to carry a balance.

Why It Happens

Penalty APRs are often triggered when you miss a payment, particularly if it’s more than 60 days past due. The idea behind penalty APRs is that issuers want to protect themselves from the higher risk associated with customers who miss payments regularly. If your interest rate increases, you’ll pay more interest on your outstanding balance.

How Much Could the Penalty APR Be?

The penalty APR could be 29.99% or even higher, depending on the issuer. This is a sharp increase from the typical APR, which can range from 12% to 25% depending on the card. Penalty APRs can stay in place for months or even years.

Tip to Avoid Penalty APR

If you miss a payment, contact your credit card issuer immediately. In some cases, they may be willing to remove or reduce the penalty APR, especially if you’re able to bring your account back into good standing and demonstrate a consistent payment history going forward.

5. Your Credit Limit May Be Reduced

In addition to raising your interest rate, credit card issuers may also choose to lower your credit limit if you miss a payment.

Why It Happens

When you miss a payment, issuers may perceive you as a higher-risk customer. In an effort to mitigate their risk, they may lower your credit limit. This can lead to an increase in your credit utilization ratio, which is the percentage of your available credit that you’re using. A higher credit utilization ratio can negatively affect your credit score.

How It Affects Your Credit Utilization

For example, if your credit limit is reduced from $5,000 to $2,500, but your balance remains the same, your credit utilization ratio will increase. This can make it more difficult for you to improve your credit score, as credit utilization makes up 30% of your FICO score.

Tip to Avoid a Credit Limit Reduction

Stay in communication with your issuer and keep your account current. If they do reduce your credit limit, you may be able to ask them to raise it again after several months of consistent on-time payments.

6. Collection Efforts May Begin

If your payment is missed for 60 days or more, your account may be handed over to a collection agency.

Why It Happens

After multiple missed payments, the credit card issuer may decide that it’s unlikely they will collect the debt. In this case, they may sell your account to a collection agency or hire a third-party collector to pursue the debt.

The Impact of Collections

Once your debt is in collections, it can significantly damage your credit score, and the collection account can remain on your credit report for up to seven years. Collections can also lead to legal action, wage garnishment, or other negative consequences.

Tip to Avoid Collections

If you’re struggling with payments, consider contacting your credit card issuer to discuss payment options before your account is handed over to collections. Many issuers are willing to work with you on payment plans or offer temporary relief.

7. Rewards and Benefits Could Be Impacted

If you have a rewards credit card, missing a payment may cause you to lose valuable rewards points, cash back, or other benefits.

Why It Happens

Most rewards credit cards have terms that require you to stay current on your payments to keep your benefits active. If you miss a payment, your issuer may suspend your rewards program until the balance is brought current.

Tip to Protect Your Rewards

If you’re close to missing a payment and want to avoid losing rewards, pay at least the minimum amount due before the deadline. Even if you can’t pay the full balance, this will help protect your rewards.

8. Long-Term Difficulty Getting Future Credit

A missed payment can make it harder for you to obtain credit in the future.

Why It Happens

Your credit score is one of the most important factors lenders consider when evaluating your creditworthiness. A missed payment, especially one that is reported to the credit bureaus, can lower your credit score and make it more difficult to qualify for loans or new credit cards in the future.

Tip to Repair Your Credit

If your credit score has been negatively affected by a missed payment, work on improving your score by making consistent on-time payments, reducing your credit card balances, and regularly monitoring your credit report for errors.

What to Do If You Miss a Payment

If you miss a credit card payment, don’t panic. Take immediate action to minimize the consequences:

1. Make the Payment Immediately: The sooner you make the payment, the less damage it will do. Try to pay at least the minimum amount due to prevent additional penalties.

2. Contact Your Issuer: If you can’t pay the full amount, contact your credit card issuer to explain the situation. They may offer to work with you by reducing fees or setting up a payment plan.

3. Set Up Automatic Payments: To avoid missing future payments, consider setting up automatic payments for at least the minimum payment amount. This can ensure that you never miss a due date again.

4. Monitor Your Credit: Keep an eye on your credit report to ensure that the missed payment is reported accurately and take steps to repair your credit if needed.

Conclusion

Missing a credit card payment is a mistake that can lead to immediate and long-lasting consequences. Late fees, interest charges, credit score damage, and reduced credit limits are just the start of the potential fallout. However, if you take swift action, you can minimize the damage. Whether it’s paying off the balance quickly, negotiating with your issuer, or setting up automatic payments for the future, addressing missed payments promptly can help get you back on track financially.