Drawbacks of Delayed Credit Card Payment

Introduction

Credit cards have their fair share of benefits and drawbacks, just like any other kind of credit or loan. On the other hand, it grants someone the freedom to make purchases without concern for their financial situation. However, skipping payments on credit card balances can send a person into a loop of increasing debt.

There may be circumstances in which it makes sense to delay paying using a credit card, especially if there is a financial crisis. But in addition to late payment fees, skipping credit payments might have penalties that have a long-lasting impact on one’s financial situation. To make things simpler, many card issuers provide a choice to transfer your existing debt to another credit card using balance transfer credit cards which provides a time limit during which you must pay either no interest or a reduced rate. The following are some drawbacks of delayed credit card payments.

Higher Rate of Interest

Credit card companies often charge a penalty interest rate if a credit card payment is overdue by more than 60 days. Many credit card issuers set this penalty rate to be imposed on the amount of unpaid debt at as much as 30%. The higher interest is still applied to any new purchases or cash withdrawals, even after the credit card payment has been paid in whole and on time for the past 6 months.

Weak Credit Score

Any bank or financial institution that receives a loan request or credit card application will verify the applicant’s credit history. The credit score measures a person’s worthiness as a debtor, i.e., the one who consistently pays their monthly dues. A regular credit bill payment routine and the practice of clearing other debts have a substantial positive impact on credit scores. Therefore, a poor payment history will have an immediate impact on the credit score, since banks consider these failures in the credit information. As a result, there is a greater possibility of a loan or credit card application getting denied, and there is also a greater chance of receiving a loan with a higher interest rate.

Late Payment fees

The high late penalties imposed by banks and credit card issuers are only one of the reasons why no one should avoid making late credit card payments. According to RBI regulations, a credit cardholder will be charged a late fee if they continue to have unpaid balances even after three days after the due date. The late charge is then added to the account for the following billing cycle and can be expensive for the cardholders.

Problem with debt collection

Once an account is in collection for a while, credit card firms will not stop to recover the debt. They could also demand high fees which, unfortunately, are not prohibited. Not only credit card firms will seek the defaulter repeatedly, but if a consumer refuses to pay despite the demands of the business, the collection agency has the right to classify the credit account as defaulting on the credit report.

Conclusion

Check your free credit reports from the major consumer of credit agencies to keep track of your overall credit health. We outline the variable that might affect your score so you can monitor your payment history in addition to other crucial areas. Making timely payments each month may help you establish a good credit history and raise your credit ratings over time.

Read More: What Are The Advantages Of Plastic Cards