How credit card late fees work

Most people end up paying late payment fees on their credit card not because of lack of funds, but because they forget to make their payment on time.

This guide tells you all you need to know about late payment fees on credit cards, including how to avoid them.

What are credit card late fees?

Credit card late fees are applied when you fail to make at least the minimum repayment as defined by the card issuer for a given statement period.

Like other fees such as balance transfer fees, over limit fees, and dishonour fees, late payment fees can be easily avoided with effective budgeting or changing to a credit card that doesn't charge the fee.

When are credit card late fees charged?

Credit card late payment fees are charged if you fail to make your repayment on time.

When you have an unpaid balance remaining at the end of each billing period, credit card issuers expect you to make a minimum payment if you are not able to pay off your balance in full.

Typically, the minimum repayment amounts to either a small percentage (2 - 3%) of the outstanding balance or $20, whichever is higher.

For example, you are repaying the minimum required each month. Your payment was due on the 1st, but you forgot to pay (or your direct debit failed due to a lack of funds). You send a payment, which arrives at 7am on the 2nd. You will be charged the late fee.

What can happen when your credit card payment is late?

The most obvious effect of a late payment is being charged a late payment fee, but often, it does not end there.

Credit card issuers report late payments, especially recurring late payments, to credit reporting bureaus.

Since repayments play a significant role in the calculation of your credit score, a late payment can cause your score to go down.

This can make it harder to get approved from new credit until you’ve improved your credit rating (which takes time).

How to avoid credit card late fees

With a little planning, you can avoid credit card late fees by setting up a direct debit, spending within your means, and making sure you have enough funds in your bank account so the direct debit doesn’t fail.

Pay your credit card bill on time

The best option, and the most financially responsible, is to pay your credit card statement in full and on time every month. If you have no balance there will be no late payment fee.

Set up a direct debit for your monthly credit card repayment

As long as there is enough money in your bank account, a direct debit is a sure way to avoid unnecessary late payment fees.

• Set the direct debit amount to the full amount due.
• The closer you can get to the full amount, the less interest you will pay.
• If you cannot afford to repay in full, try to pay back more than the minimum required.

Set up payment reminders

There are a variety of ways to do this. Here are two easy and free options.

• Set up a reminder on whatever calendar app you use.
• If you use a personal financial planner app, you can use it to ensure you build in your credit card payment.

Switch to a credit card with no late payment fees

Not all credit card issuers charge fees on late payments. In fact, most no interest credit cards do not charge late fees.

Can late payment fees be reversed?

There is a chance that you could have a late payment fee reversed, but it is unlikely — even with a good record of timely repayments.

It is much less likely that a late payment fee will be reversed if you are habitually late.

Even if you did get the fee waived, it is likely that a late payment will still be recorded on your credit report.

Late payments vs missed payments

Two days are important when talking of late and missed payments on credit cards: payment due date and the reporting date.

• Due date. The date by which you are required to make your minimum payment.
• Reporting date. At least 30 days after your due date. If you've not paid by then, it will go down as missed.

If you miss the payment due date on your credit card for any reason, you may incur a late payment fee. But you still have 30 days to make the payment before your late payment gets reported to credit bureaus as a missed payment. In effect, a missed payment is the result of going an entire billing period without making a payment.

If you pay the full balance on your credit card within 30 days of the due date, your delay may not be reported to rating agencies at all. If you make a partial payment or the minimum balance within that window, it is likely to be reported, if your issuer is a reporting bank.

Not all credit card issuers report to all three key credit bureaus: Experian, Equifax, and illion. Some report to all three, others to one or two and some credit card issuers report to none of them. Whether a missed credit card payment may or may not get included in your credit report depends on your card issuer and their reporting patterns. It is best not to take the chance, especially if you plan on applying for credit in the near future.

If you are struggling with credit card repayments

If direct debits do not work for you due to cash flow issues, consider contacting the credit card issuer to ask for an extension on the payment.

You may also apply for financial hardship provisions, if you qualify.

FAQs

Is a late payment the same as missed payment?

No, late payments and missed payments are not identical. A late payment refers to a payment made after the due date but within a generally accepted grace period. A missed payment, on the other hand, is when you fail to make the payment altogether within that billing cycle.

Is a late payment the same as a default?

No, late payments and defaults differ significantly in terms of severity. A late payment refers to a payment made after the due date but within a generally accepted grace period. A credit card default typically occurs after multiple missed payments, indicating a more serious inability or unwillingness to repay the debt. Defaults can have more significant consequences for your credit score and may remain on your credit report for years.