You are about to fall asleep when you snap wide awake. You realize that you forgot to pay your credit card bill—which was due five days ago. Or, you remember your mortgage payment due date is coming up and you know that you won’t be able to make it.
Missing a bill payment isn’t necessarily the worst thing in the world, but it will have a negative impact on your credit score—and a bad credit score can make your debt more expensive in the long run. Don’t worry though— there are several things you can do to minimize financial impact:
1. Late Fees and Penalties
In some cases, a missed bill payment can result in late fees and penalties. For example, if you don’t make your credit card payment on time, the card company might tack on a late fee. Usually the fee is about $25-$35 (depending on how many times you’ve paid late). Missing a payment can also lead to an increase in your interest rates. The penalty or default interest rate on credit cards is usually around 29.99 percent. Making a payment late can also cause you to lose any promotional deals or offers you had on the card, such as a zero percent interest rate.
In 2010, the CARD Act set parameters on the number of late fees allowed. In addition, the CARD Act limited the amount of interest rate increases permitted. This means your card issuer can’t increase the rate on your old balance until you are more than two payments behind. However, it also means your card issuer can increase your interest rate on new balances right away.
Impact on Your Credit Score
Your payment history makes up 35 percent of your FICO Score. That said, missing a bill can have a pretty big impact on your FICO Score, especially if you are in the habit of making payments late or have missed several bills. FICO looks at a few factors when deciding how much of an impact late payments have on your overall score, such as: how recently you made the late payment, how much you owe, and how many late payments you’ve made.
What to Do
If you’re about to miss a bill payment or recently did miss one, the best thing you can do is be proactive about it. Your mortgage lender might allow you to enroll in a forbearance program and during the program, you’ll be able to avoid making payments. In addition, if you contact your credit card company about a late fee or penalty interest rate after you’ve made the payment and your account is current, the company might waive the fee or agree to restore your interest rate.
Working with a credit counselor can also help you, especially if you are concerned that missing payments will become a regular thing. A counselor will take a close look at your current financial situation. Then, they’ll help you put together a plan, either to create a budget or to enroll in a debt management plan. If you are struggling to make ends meet and are worried you will have to pay a bill late or skip a payment entirely, contact us for help today.
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Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.
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