Credit Cards: The hidden costs of missing a payment you should know

As a credit card user, there might be instances where you forget to pay your credit card bill on time. However, if you do so, there might be many consequences. Therefore, one of the biggest responsibilities of a cardholder is to pay bills on time.

Check out the reasons why you should pay bills on time:

Interest rate

The interest rate on a credit card, also known as the finance charge, is levied by credit card issuers on the outstanding balance. It applies to card users who do not fully pay their credit card dues. This interest rate will increase if you do not pay the minimum amount before the due date. It will also be applicable on cash withdrawals and expenses made through card after the due date.

Late payment fee

A late payment fee is a charge levied on credit card users who fail to pay their bills on time. Issuers charge this fee in the next credit card bill. According to the Reserve Bank of India (RBI) mandate, a late fee is charged on the outstanding amount rather than the total amount. Additionally, the central bank states that a late payment fee will be charged if the bill payment is made three days after the due date.

Minimum due amount

Some credit card users feel paying the minimum due amount will not incur any interest charges on the outstanding bill amount. However, you will be required to pay interest on the outstanding amount beginning from the payment due date. Therefore, it is advised to pay your entire credit card bill by the due date.

End of the interest-free credit period

By not paying your credit card dues on time, issuers can withdraw the interest-free credit period from your card. It is the period between the transaction date and the payment date. The interest-free credit period can range between 20-50 days. It adds an advantage to your credit card as the issuers bear the interest on your card till the due date.

Impact on credit score

A credit score is an important that determines your creditworthiness. Your credit card bill payment forms an important component of your credit score. Therefore, non-payment of credit card dues can have a negative impact on your credit score, which could affect your chances of getting a loan or credit in future.

Affect on credit limit

If you frequently miss paying your credit card dues on time, issuers can even lower the credit limit on your card. This will limit your spending capacity for future transactions on your card. In certain other cases, too, such as exceeding credit limit often, lower credit score, etc., can lead to issuers lowering the credit limit on your card.

In conclusion, as a credit card user, you should be responsible for paying bills on time to avoid extra charges on the card. Apart from the added expenses, missing payments also reflects poorly on your capability to manage your finances.

(Note: Using a credit card carries its own set of risks)