Credit Card Late Fees
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What Are Credit Card Late Fees?
A credit card late fee is the charge the credit card issuer applies to your account if you fail to meet the minimum payment by your bill’s due date. Aside from being penalized with a fee, severely late payments can affect your interest rate and credit score. This can ultimately hurt your bottom line.
Understanding Credit Card Late Fees
Credit card issuers charge late payment fees if the required minimum monthly amount is not paid by the bill’s due date. The fee depends on the card issuer. Some charge a flat amount while others charge a percentage of your total bill, whichever is greater. If you’re charged a late fee, it will show up in your next billing statement and it will increase your minimum payment due. This can make it even more challenging to manage your finances.
Late payment fees can be a vicious cycle. If you’re struggling with finances and pay your bill late, you will be charged a late fee added to your next minimum payment. If the next month you can’t meet that new minimum on time, you will be charged yet another late fee.
Aside from being penalized with a fee, late payments made after an entire billing cycle, typically 30 days, will be noted on your credit report. Your on-time payment history is one of the most important considerations factored into your credit score so late fees can moderately impact your credit score.
How Late Fees Work
There are some credit card issuers that don't apply late fees to missed payments; however, most do. By law, first time late fees can be no higher than $29, while subsequent penalties can reach $40. These fees can change each year, as the Consumer Financial Protection Bureau evaluates limits annually to ensure they align with U.S. inflation.
If you're late on a payment, you may not be charged the highest possible amount. Some banks set their fee based on the frequency of your late payments, while others split late fees into tiers based on your credit card balance.
Card issuers are required to give you a 21-day grace period, which is the date between your new statement and the due date. This does not technically grant you more time after the due date, but it does give you time to pay your new monthly balance due bill without interest.
Some credit cards charge no late fees which can help you manage your finances during difficult times. Petal 2 Visa offers no late fees, no annual fee, and lets you earn cash back on every purchase. Similarly, Citi Simplicity® Card charges no late fees and annual fee, and offers 0% intro APR period for balance transfers in the first 21 months.
Where to Find Your Credit Card Late Fees
Credit card issuers are required to disclose late payment fees in the card’s credit card agreement. This is also where you can find your account’s applicable associated fees. It will also be listed in your billing statement under the “late payment warning” section and is required for issuers to provide. This will detail any penalty fees you could accrue on your account if you pay after your account’s due date, which includes late fees and penalty annual percentage rate (APR).
Credit Card Late Fee Examples
How much you get charged for a late fee depends on your issuer. Although there is a maximum limit they can charge you, not all issuers will give you the maximum fee — some issuers have tiered late fees. This is where they base your fee off your total card balance. For instance, a card issuer may charge $15 for balances under $1,000, $20 for those between $1,000 and $1,500 and $30 for those above $2,000.
Following the example, if you have a credit card balance of $1,250, you will be charged your regular minimum payment, a late fee of $20 and any past due payment from your previous billing cycle. A tiered system can be beneficial if you don’t use your credit card for big purchases. This is because you won’t be charged a high fee if you happen to make a late payment.
How Credit Card Fees Compound
If you continue to make late payments over the course of time, the late fee will compound. For example, say you have a card with a balance of $500, 15.99% interest rate and a first-time late payment fee of $20. In your next billing cycle, you will owe about $600 for being late and for interest on your balance. If you continue to miss your payments for three consecutive months, you can receive a penalty APR and a higher late fee and interest rate.
The table below shows how late fees can compound if you have a $500 credit card balance and fail to pay for three consecutive months. Note that the figures are hypothetical, rounded to the nearest dollar and do not include the minimum payment as that varies based on issuer.
First Billing Cycle with Late Fees
Second Billing Cycle with Late Fees
Third Billing Cycle with Late Fees and Penalty APR
Total Balance Due
Facing A Credit Score Hit
One of the worst consequences of late payments is your credit score plummeting. Banks report your activity to credit bureaus, including your payment history, balances and revolving credit. These create your credit score, with FICO® and VantageScore considering your payment history as a big factor. In particular, a 30-day late payment can cause as much as a 83-point drop in your score.
If you pay a day late, banks may not report your activity to the bureau and you may get away with a late fee or even a waived fee. If you miss a full billing cycle, banks are required to report it to the credit bureaus. This can stay on your record up to seven years and can impact your lending opportunities and needs, such as applying for credit, loans and rental agreements.
Suffering From Penalties
Late fees are not the only consequence of a late payment. Consecutive delinquencies can result in a reduction of your good APR to a penalty APR.
Imagine this: you’re strapped for cash and end up using your credit card. Since you've been experiencing financial difficulties, you haven’t been able to make the minimum payments for two months in a row. What happens? You end up getting a penalty APR on top of late fees, which can affect your balance and extend the time it takes to pay your credit card debt. This is why making sure to pay the minimum on time is essential, as no one wants to incur multiple late fees and a higher interest fee. If you know you’re likely going to miss a payment, contacting your issuer as soon as possible with a new payment date may help you keep your account in good standing.
How to Avoid a Credit Card Late Fee
Proper management of your finances is key to avoiding late fees on your credit card. Below are a few tips to help you keep your account in good standing.
Card selection forethought
Choose a credit card that has a low late fee or none at all
Assess your monthly expenses to ensure you can pay at least the required minimum payment by your due date.
Know your due dates
Keep in mind the cutoff time of your due date — payments made after the cutoff can still incur a late fee.
Maintain reminders on your mobile phone about your due date.
Turn on bill pay
Automate your payments so they are paid on time.
Know the penalties
Knowing what the penalties and late fees are on your account can help you avoid making late payments.
Change your payment date
If your due date falls at an inconvenient time, such as right before your pay dates, ask for it to be adjusted to a date that aligns better.
Negotiate for better terms
It’s possible to ask your card issuer for a lower interest rate or a reduction in fees, which can make monthly payments easier to make consistently and on-time.
Qualifying for a Fee Waiver
If life gets in the way and you miss a due date by a few days — don’t panic. You can simply ask your card issuer to waive the fee.
Credit card issuers can offer some form of flexibility when it comes to late payments. If you’re late by a day or two, and the late fee hasn’t been charged to your account yet, you can call your card company to explain your situation. They may offer to waive or reduce your fees, especially if you routinely make on-time payments.
However, keep in mind that your payment history plays a big role in a card issuer’s decision to waive your late fee. If you have missed your payments at least once in the past six months, they may not be so forgiving.
Beyond Fees: The Consequences of Missing Payments
Missing payments can result in financial consequences that go beyond late fees. It can affect your interest rate, credit score and even your card rewards. It can also negatively impact your financial standing for months or even years, if not handled properly.
You May Receive A Penalty APR
If you’re at least 60 days late on payments, banks can penalize you with an interest rate hike, which is usually the maximum APR that the card has. How long this lasts will depend on your bank, but all issuers are required to reanalyze your situation every six months, which means it can last at least that long or more.
Keep in mind that card issuers cannot raise your APR until you’re 60 days late or missed two consecutive payments.
Your Credit Score May Take A Hit
Late payments are reported by banks to credit bureaus if you skip an entire billing cycle, which is typically 30 days. Payment history is an important factor for both FICO® and VantageScore, which means your score is likely to take a hit if you make a 30-day late payment.
You May Lose Your Rewards
If your card has rewards, be it in the form of cash back, points or miles, card issuers have the freedom to suspend them if you make late payments. Some banks may even apply a reinstatement fee to let you get your rewards back even after you’ve made timely payments. Banks can also revoke any promotional offers, such as 0% APRs, which can be inconvenient if you transferred your balance from another card.
Credit Card Late Fee FAQs
Late fees can be easily avoided with the right measures, but remaining aware of the consequences can encourage you to stay on the right track. Below are a few frequently asked questions regarding late fees.
Expert Insights About Credit Card Late Fees
Understanding late fees and how to avoid them is essential to ensure you're always on the right financial track. To help you avoid late fees, MoneyGeek reached out to experts in the finance industry to gain insight on how you can steer clear of such charges.
- What is the best advice you can give to someone who wants to avoid late credit card payments?
- Prior to card applications, what should future credit card holders watch out for when it comes to late fees?
Financial Advice Expert at Albert
Managing Director of Westwood Tax & Consulting
Accredited Financial Counselor® at Self Financial
Being a responsible credit card holder requires understanding more than just the late fees. Learning common credit card terms and how credit cards work can help ensure you use your card the right way and maintain good financial habits. The following guides can help increase your credit card knowledge.
- Credit Card Terms 101: When you're researching the best credit cards, you’re bound to encounter various financial terms. Explore this credit card glossary for understanding key terms, such as authorization codes and open-loop cards, to expand your understanding.
- How Credit Cards Work: Learn about all things related to credit cards — from how to review your statement and swiping or dipping your car to how banks make money.
- Your Rights as a Credit Card Holder: Knowing your rights as a credit card holder can help protect you in case of any misuse or disagreement with your card issuer. This guide can provide you with an expansive review of your rights.
- A Guide to Your First Credit Card: If you're thinking about applying for your first credit card, make sure you know all the facts first. Discover key points in this guide to ensure you choose the right card that fits your spending habits best.
- Charge Cards vs. Credit Cards: Credit cards may not be the best option, but knowing that you have another option can help ensure you stick to what’s right for you and what suits your financial standing. Learn more about the differences these two cards offer and how to best use them.
About Nathan Paulus
- Federal Register. "Truth in Lending (Regulation Z) Annual Threshold Adjustments (Credit Cards, HOEPA, and Qualified Mortgages)." Accessed November 22, 2021.
- FICO. "FICO Consumer Credit Activity Infographic." Accessed November 23, 2021.
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