credit card advice
For better or worse, your credit card tells the world a lot about you. It can tell a happy story when you make your payments on time — you’re someone who can handle your current credit debt and probably more if you need it.
However, miss a payment and the story sours. Your costs can go up and your access to further credit is threatened.
Credit counselors often point out the wisdom of paying back more than the monthly minimum amounts on your credit cards, because otherwise it might take a long time to pay off your balance and will cost you much more in interest.
Missing a payment could trigger an unfortunate series of events:
1. You’ll pay late fees
Miss your payment by even one day and the credit card company will likely slap you with a late fee, usually in the $25 to $35 range, but it could be higher. The fees can escalate if you continue to miss payments.
2. Your interest rates will go up
Credit card companies don’t like missed payments and often react by raising your APR to almost 30 percent. If you thought money was tight when you were paying, say, 15 percent on your credit card balances, doubling your interest makes matters that much worse.
It compromises your ability to make your future payments, which can start a downward spiral leading to grim financial consequences.
Tired of high interest rates? Consider opening a low APR credit card.
3. Your credit will suffer
The three credit bureaus report payments more than one month late. This derogatory item can hang around for the next seven years, befouling your reputation with new creditors, employers, landlords and whoever else has need to see your credit report. This is not good.
It seems a shame that a person’s whole being is reduced to one number, the credit score, but for many creditors, that’s a fact of life. About 35 percent of your credit score reflects your credit history, so when you miss one or more payments, your credit score can plummet.
Paradoxically, the worst damage occurs if, until now, you’ve maintained a spotless credit history. The longer you wait to make the payment, the deeper your credit score will descend, cutting your access to new credit and raising the interest rate on any new credit you’re able to obtain. Getting a mortgage or buying a car just got a lot harder.
You can respond to the damage caused by missing a payment in several ways:
- Ask the credit card company to waive the late fee
They just might — if it’s the first time you’ve been late. Removing the fee is important because you don’t need that little tidbit of information lingering on your credit report for seven years. Also, see if you can negotiate a lower penalty rate.
- Consolidate your debts
Transfer balances to one or just a couple of credit cards, so that you don’t have to pay minimum balances to half a dozen card companies. This will better enable you to pay your bill on time.
- Dispute errors
If you think you’ve been wrongly accused of missing a payment, dispute the error with the credit bureaus. It is a good idea to enlist the services of a credit repair company to help have the damaging error removed from your credit history.
Sometimes life gets complicated and money gets tight. If at all possible, pay your debts on time — the consequences of not doing so are too dire to ignore.
Photo credits: alexskopje/Shutterstock, LowCards.com, citifmonline.com, efinancialcareers.com