The Benefits of Timely Credit Card Payments
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LaToya Irby is a credit expert who has been covering credit and debt management for The Balance for more than a dozen years. She's been quoted in USA Today, The Chicago Tribune, and the Associated Press, and her work has been cited in several books.
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Updated on August 3, 2021
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Reviewed byThomas J. Catalano
Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018.Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.
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Fact checked byLeila Najafi
Every now and then, you may be tempted to put off your credit card payment for a few days,especially when you're low on cash and have a bunch of other bills coming due. Sometimes even knowing the consequences gives you just the push you need to send your credit card payment on time. You can rationalize a late fee, even learn to live with a penalty rate increase, or worse, choose to suffer the credit score damage from a late payment. Butpush those thoughts aside, and instead, think about the benefits of making your payment on time.
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Your Accounts Stay out of Collections
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More credit card companies are turning to debt collection agencies when their customers don’t send credit card payments on time. Even the smallest credit card balance can get sent to a collection agency if it goes unpaid for several months.
Once an account is in collections, you no longer have the option ofmaking minimum monthly payments. The collection agency will demand the full balance and sometimes even an additional fee, as allowed by law. Collection agencies contact you repeatedly until you pay up and can even place the delinquent account on your credit report. Pay on time and you can avoid dealing with debt collectors.
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Enjoy a Lower Interest Rate
Late payments can cost your low interest rate. Credit card issuers are allowed to increase your interest rate if you’re more than 60 days late on your credit card payment. The penaltyinterest rate on many credit cards is a staggering 30%.
While the penalty rate will expire if you pay on timesix months in a row, in some cases, the penalty rate will continue to be applied to new purchases as long as you have that credit card. Paying your credit card on time prevents you from triggering a higher interest rate on your credit cards.
Credit card issuers are allowed to raise your interest rate on any other credit cards you have with them, even if you've always kept up with those payments.
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Avoid Late Fees
Avoid expensive late fees (up to $38) by sending your credit card payment on time. The first time you're late on a credit card payment, your late fee may be as much as $28. If you're late again within six months, your late payment can be as high as $38.
Make your credit card payment before the due date to avoid the risk of missing the payment cutoff time.
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Improve Your Credit Score
Thirty-five percent (35%) of your credit score is based on whether your credit card payments are made on time. Your credit score benefits the mostif you consistently make your credit card payments (and all your other payments) on time.
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Get Lower Insurance Rates
Insurance companies increasingly use your credit score to determine insurance rates. When late credit card payments lower your credit score, your insurance rates could increase when it's time for your renewal. Sending your credit card payment on time helps you get the lowestinsurance rate and therefore helps you save money.
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Keep Your Monthly Payments Low
When your credit card payment is late, your next minimum payment will be more than double what it would have been had you not missed a payment. That's because your next credit card payment will include two minimum payments and a late fee. If you have trouble making your credit card payment, putting it off won’t make it easier to pay. Instead, the opposite happens and it gets increasingly difficult to get caught up.
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Keep Your Credit Card in Good Standing
Missing a credit card payment puts you at risk of having your credit card close. This couldhurt your credit score, especially if you have a credit card balance. Keep sending your credit card payment on time so your account remains open and in good standing.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Consumer Financial Protection Bureau. "The Card Issuer Increased My Interest Rate on My Existing Balance. Can They Do That? What Can I Do to Get the Rate Back Down?"
South Dakota Consumer Protection. "Credit, Debit, & ATM Cards."
Consumer Financial Protection Bureau. "Credit Card Account Management," Page 44.
Consumer Financial Protection Bureau. "§ 1026.52 Limitations on Fees."
MyFICO. "What's in My FICO®Scores?"
