To miss a credit card payment is to be human, as the saying goes. Okay, that’s not really a saying, but I think most of us have missed a payment at least once in our lives.
For some, it’s learning a lesson, while for others it may just be out of necessity. Heck, there are times when coming up with just a minimum payment may seem impossible.
But whatever the reason, it’s important to understand the consequences of missed credit card payments, which are perhaps the most commonly missed payments out there.
Pay Within the Grace Period
So you have your standard billing cycle, which is about a month, followed by another 20 to 25 days or so when you can make your payment penalty-free.
During this time, you can make a minimum payment just to avoid any late fees, or make your payment in full to avoid interest (assuming you didn’t carry a balance the month before).
If you don’t make at least your minimum payment within the grace period, you will be assessed a late fee, which is now capped at $25 unless you’re a repeat offender.
This is pretty straightforward stuff, although it is recommended that you never carry a balance on a credit card with an APR higher than 0% to avoid unnecessary finance charges.
Tip: When you open a credit card, contact your credit card issuer to ensure you’re aware of the grace period and how it works. Never assume anything.
When Your Credit Score Takes a Hit
As mentioned above, missing your payment due date will result in a late fee, which while unfavorable, isn’t the end of the world.
But where things really get nasty is when you miss two consecutive credit card payments.
In other words, you’re about 30 days late on the initial payment. At this point, most credit card issuers will report your lack of payment to the major credit bureaus.
As you can see, a missed credit card payment can lower your credit score anywhere from 60-90 points.
For those with higher starting credit scores, the impact is actually slightly larger. Sound unfair? It’s only because the consumer with the lower starting score already has some level of badness factored in.
In fact, a consumer with otherwise flawless credit would see the biggest hit from a 30-day late payment, whereas a consumer with existing delinquencies would see a softer blow.
Using the VantageScore credit score range, which goes from 501-990, a 900 score could drop to 810.
That would push you from their “A” bracket to the bottom of their “B” bracket, which is certainly a big hit.
If you’re 60 days late on your credit card, expect the credit hit to increase to as much as 120 points. That’s as bad as a missed mortgage payment and in the realm of foreclosure impact. Ouch!
As far as FICO scores are concerned, the damage is pretty similar. A 30-day late payment results in a drop of anywhere from 60-80 points for someone with a 680 FICO score, and 90-110 points for someone with a 780 starting score.
FICO Score Impact
Tip: Maxing out a credit card can lower your FICO score as little as 10 points and as much as 45.
On top of all this, missing multiple payments can also trigger default APR, which is considerably higher than standard credit card APR.
Talk about sticking it to the consumer! And you wonder why people can’t get out of credit card debt.
The Good News
While this all sounds downright nasty, it’s not the end of the world. A missed credit card payment can sink your credit score, but its impact fades over time.
It may remain on your credit report for seven years, but it should only affect your credit score negatively for about two years.
After that time, it will still be present to prospective creditors, but it shouldn’t lower your score.
The takeaway here is ensuring you make at least your minimum credit card payment every month. Otherwise, it can cost you money in late fees, higher APRs, and even via a lower credit score, which will make future financing more costly.
So pay attention to due dates and grace periods, call your credit card issuers to ensure you’re on the same page, and create account alerts to make sure you never miss a beat!
Tip: You can change your credit card due date if you want to pay on a certain date, or even set all your due dates to fall around the same time so you never forget a payment.