If you are an avid credit card user, you are bound to understand its importance in your day-to-day life. This convenient financial tool can be quite useful when it comes to making cashless purchases, and also for earning back rewards. Among its many benefits, it also helps build credit scores, provide emergency funding, and protect against fraud.
However, credit cards must be used responsibly. Users must not end up accumulating high-interest debt and avoid credit card late payment charges.
Late credit card payments may seem like a small concern to many but they can turn out to be quite serious at times. This is why it is always advisable to pay your credit card bills on time.
In this post, we are going to discuss six reasons why you should avoid late credit card payments.
Reasons to Avoid Late Credit Card Payments
Let’s understand some reasons why you must avoid late credit card payments.
- Late fees and penalty charges:
Credit card late payment fees can attract hefty fees and penalty charges that can add up quickly and significantly increase your outstanding balance. For example – if you miss the payment deadline by a day or two, you may be charged a late fee of up to Rs 1,000 or more. This amount can further increase with time, making it all the more challenging to manage your finances.
- High-interest rates:
Credit Card companies charge high-interest rates on late payments, which can add to your financial burden and make it difficult to pay off your balance. The interest rates on credit cards can range from 18% to 48% per annum, depending on the card and the issuer. If you miss your payment due date, you could pay significant interest on your outstanding balance.
- Adverse impact on credit score:
Late payments can harm your credit score. A lower credit score can make it harder for you to get loans or other credit in the future. Credit bureaus such as CIBIL, Experian, and Equifax keep track of your payment history and assign a score based on your credit behaviour. A late payment can lower your score and make it harder for you to get approved for loans or credit cards in the future.
- Loss of interest-free period:
If you continue to pay your credit card bills late, you may lose the interest-free period that comes with your card, which means you will have to pay interest from the date of purchase. Most credit cards in India offer an interest-free period of up to 50 days from the date of purchase, provided you pay your bills on time. However, pay your bills on time to avoid losing this benefit and paying interest on all your purchases.
- Reduced credit limit:
To avoid a decrease in your credit limit, it is advisable to ensure timely payment of your credit card bills. Late payments or a high outstanding balance may lead credit card companies to reduce your credit limit. This can make it difficult to use your credit card for large purchases or emergencies.
In addition, maintaining a low credit utilisation ratio and paying your credit card bills on time can increase your eligibility for a credit limit increase. This can provide you with greater financial flexibility when faced with emergencies or larger purchases.
- Legal action:
In extreme cases, credit card companies may take legal action against you for non-payment of dues, leading to legal fees, court appearances, and a tarnished credit score. If you continue to miss your credit card payments despite repeated reminders and warnings, your credit card issuer may take legal action against you. It can result in legal fees and court appearances and negatively impact your credit score.
Wrapping up
By avoiding late credit card payments, you can avoid these consequences and maintain a good credit score, which may come to be pivotal for your future finances. Remember to set up automatic payments or reminders to help you stay on top of your payments and avoid late fees and charges.