The Real Costs Of Making Late Repayments

There's been a lot of fuss in recent years about the level of charges credit card issuers impose on people who make their payments past the 'due by' date on their statements.

Where once these fees could be levied at £25 per offence, or in come cases even higher, they are now at a fairly standardised level of £12, following pressure from the Office of Fair Trading who had concerns that the high charges may have been punitive in nature, and therefore illegal.

The new figure of £12 may make a late payment seem less of a big deal, and you may even be tempted to take the hit if delaying your payment by a few days eased the pressure in another part of your finances.

Unfortunately, the standard late payment charge isn't the whole story, and missing payments will cost you in other ways too.

Credit Ratings

Although it's a relatively minor offence, the presence of late payments on your credit record is not taken as a reassuring sign by providers of credit, and the more you have the bigger the impact.

Not only will a damaged credit record mean that new credit card deals become harder to get on the best terms, there are implications for future more important types of finance such as mortgages and remortgages, where you want your credit score to be as high as possible if you're to get a competitive deal.

Your Credit Limit

Frequent late payments can be taken as a sign that you're struggling financially, and your card issuer may take steps to protect themselves by reducing your credit limit, in some cases quite dramatically. If having a large credit limit is important to you, then you should try to keep your account in good standing at all times.

Your Standard APR

The final damage that late payments could cause is to have the effect of pushing up the interest rate on your card. A large number of late payments can lead to your credit worthiness being reassessed, and your interest rate increased to sub-prime levels accordingly. Under the credit agreement you signed, this is in most cases entirely legal, and could see the amount of your monthly repayment which goes towards clearing your debt dramatically reduced.

This means it will take far longer to clear your balance, and you'll pay considerably more interest over the time it takes to do so - a real drain on your finances that you'd want to avoid!

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• Consumer Protection with Credit Cards
• Credit Card Basics : Minimum Repayments
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• Checking Your Card Statements
• Credit Card Cheques
• Times Not To Use Your Credit Card
• Credit Cards & Minimum Repayments