One Late Payment Costs Plenty

ROCKVILLE, MD. –– Many Americans have paid a bill or two late at some point. While fees for paying late have been rising over the past few years, many creditors also have begun to raise interest rates when a late payment is made, and not just on the credit card that was paid late.

“These days many creditors are monitoring your credit report looking for late payments and problems on your other accounts,” said Steve Rhode, president and co-founder of Myvesta.org, a nonprofit financial management organization. “When you’re late on one account, it sends a signal to your other creditors that you’ve become a bigger risk so they jack up the interest rates on your cards even if you’ve never been late with them.”

The cost of one late payment can be extremely large when the penalty interest rates are added. A consumer who has one credit card that has a $2,500 balance at a 14 percent interest rate and who makes only the minimum 2.5 percent monthly payment, would need almost 16 years to pay off the balance and would pay an additional $1,980 in interest. But if the penalty rate is 28 percent, it would take 101 years to pay off the balance and cost an additional $30,165 in interest.

“These days one late payment means a lot more than just a $39 late fee or a mark on your credit report,” Mr Rhode said. “When you add in the extra costs from the inflated interest rates, that late payment can cost thousands of dollars and could prevent you from ever paying off that debt.”

According to Mr Rhode, it has become more common in recent years for creditors to monitor their customers’ credit reports.

“With technological gains made over the past few years it’s become easier and cheaper for creditors to monitor their customers,” Mr Rhode said. “Creditors can automatically scan your credit report every month or even every day if they want. They know the status of your payments to your other creditors almost the instant you slip up.”