As with any asset, credit cards can be helpful if used wisely. However, they do give you more purchasing power. On the other hand, they might push you deeper into debt. Concerning credit card payments, you must exercise caution.
Forgetting to pay your credit card bill matters more than you might imagine. Your credit card company won't knock on your door after you miss a payment but they will undoubtedly take action behind the scenes. Realizing the consequences of a delayed credit card payment must be enough for you to make an additional effort to pay on time. Let's examine a few effects of late credit card payments.
Drawbacks:
A late fee
If you pay your bill just after the due date, you will be charged a late fee. The bank would add the late fee to your subsequent credit card statement. The Reserve Bank of India (RBI) recently ordered banks to only impose a late fee if the payment is more than three days past the due date. But when it comes to clearing your credit card balance, it is better to avoid taking any chances.
High-Interest Rates
If you don't pay the minimum amount due by the payment due date, the interest rate on your unpaid bill will also rise. If you continue to use the credit card after missing a bill payment, the higher interest rate will also apply to cash withdrawals and other regular purchases.
Withdrawal of the interest-free period of credit
If you don't make your card payment on time, your card's interest-free credit period may be revoked. The period of interest-free credit can be anywhere between 20 and 50 days. A major benefit of using a credit card is the interest-free credit period because the bank is effectively financing your purchase during that time. If you do not pay in full by the due date, the bank will discontinue this feature.
Negative impact on your credit rating
Your credit score establishes your creditworthiness, and banks or other lenders frequently use this score to assess your loan or credit card applications. Your payment history is a major factor in determining your credit score. Therefore, making late payments can significantly lower your credit score and make it more difficult for you to obtain new credit in the future. Your bank will notify credit information companies about your defaults, who will then factor them into your credit score. As a result, having a low credit score may cause your application for a loan or credit card to be declined. You might be given loans at higher interest rates if you have a low credit score.
Paying only the minimum due
If you're one of those people who think that if you only pay the minimum amount due, no interest will be added to the balance of your unpaid bills, you might be mistaken. In reality, interest will be charged on the balance due beginning on the due date. The annualized cost of interest can reach 45%. Therefore, it is always preferable to pay off all of your debts by the payment due date.
Bottom Line:
Credit card payments must be handled with care or else they can result in a lot of stress and problems. Regularly missing the payment deadline can result in two fees: the first is a late fee, and the second is an interest charge. Your creditworthiness could be negatively impacted by not paying your credit card bills, which would make it more challenging for you to obtain a loan or credit card in the future.
Additional Reading: Pros And Cons Of Lifetime Free Credit Card