Top Reasons To Avoid Credit Card Late Payments - Kotak Bank
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22 DECEMBER, 2021

Credit cards play a very vital role in our current lifestyle. They help in managing expenses and cover emergency payments. An important aspect to remember while getting a credit card is the due dates. Every action or inaction has a consequence. Similarly, missing due dates for credit repayments can result in many consequences.

Below are some of the top reasons to avoid credit card late payments:

  • Bad credit score

Credit card late payments can lead to a decline in your credit score. Bad credit dues form a major part of lower credit scores.

  • Late fee charges

Another reason is credit card late fee charges that can be levied if you pay your bill after the due date. So, it is better not to take chances with your credit card bill.

  • Lowering of credit limits

So what if we don't pay the credit card bill on time? If you frequently default on your credit card bills, your credit limit will be decreased. This will limit your capability to use your credit card in the future.

Situations Leading to Late Credit Card Payment

Credit card late payment charges can be a result of the following scenarios:

  • Confusion between the billing date and the payment due date.
  • Frequently overspending and not making timely repayments.
  • Credit card late fees can also be an outcome of waiting until the last day to make the payment.
  • Credit card overdue charges can also be a result of dependency on postal bills sent by banks to the physical address. This could take time and hence delay the payment cycle.

Why You Should Avoid Late Credit Card Payment?

  • Penalty for Paying Late

A primary reason anyone should reconsider avoiding a credit card bill payment is the penalty following the inaction.

Many banking institutions and credit card companies levy stiff charges as penalties. The rules related to the liability are decided by the Reserve Bank of India (RBI).

A credit card user will have to pay the penalty when they fail to clear their dues on time. There is a general three-day grace period for clearing dues. After that, users have to pay the penalty. This penalty will be added to the next month’s bill.

  • Increase in Interest Rates

Other than a penalty for late payment of a credit card bill, there is a chance of the user paying an interest penalty. This penalty is incurred when the user fails to clear the credit card bills for more than sixty days after the due date.

An interest penalty rate can be hefty. The penalty rates are decided upon by the credit card company or the banking institution. Many follow the penalty rate to be thirty per cent. It is charged on the outstanding bill amount.

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This interest is also levied upon any -

  • New purchases made by individuals using the credit card
  • Or on cash withdrawn.
  • It can be carried on for six months, even after clearing the credit card dues.
  • A Period Without Interest

When a credit card user clears a minimum due or fails to make a payment, the pending balance is brought forward. Once the user fails to pay the due amount, there is a rollover of the amount into the next payment cycle. However, in this case the non-interest period lapses and interest is charged on the due amount.

Interest would be levied on the pending balance as well as the following purchases. The interest-free period would begin again once the user clears the entire credit bill dues.

  • Conversion Into a Reneging Account

Failure to pay the due amount on a credit card often converts it into a reneging account. Reneging is a term used to signify a breach of contract. In that case fines or high interest rates can be levied on the person.

  • Poor Credit Score

A credit score plays a vital role in deciding whether the individual is creditworthy or not. Many financial and lending institutions and credit card companies consider the credit score before enrolling the applicant as a customer. A bad or a poor credit score has fewer chances of availing of a loan or a credit card.

Often, credit scores can also play a role in deciding the credit limit.

A good credit score indicates that the individual has a good history with credit repayments. Actions like the following play in boosting the credit score-

  • Regular clearance of dues on time
  • Stable payment history

When one ignores or avoids a credit bill payment, their credit score would be affected.

  • Credit Card Deactivation

A credit card can be deactivated for non-payment of bills. However, the bills need to be paid even after the credit card is closed. The pending amount has to be paid along with the interest charges.

Many select a personal loan or choose an option of EMI payment to clear off the dues. It can help in paying an interest rate that is stable and fixed. However, if the payments are left piling up, the interest can be more than the original.

When getting credit cards, there are two things to follow without fail. They are-

  • One should always ensure to clear their dues within the given period.
  • One should try not to cross the credit limit. Crossing the boundary can result in the account being labelled as a default one.

The penalties and terms and conditions on missing credit card payments can vary from card to card. As different cards have different limits and attached conditions.

Steps to follow to avoid Credit Card Due

Making a credit card bill payment will help in maintaining a good credit score. A good credit score can help in getting loans or credit cards in the future. In addition, you can follow the below tips to avoid missing a credit due date:

  • Highlighting the date on the calendars
  • Setting reminder emails, preferably three consecutive reminding mails leading to the payment day
  • Setting reminders on gadgets that are used daily, like a smartphone
  • Setting auto-debit payments

Also Read: Best 4 Tips To Pay Off Your Credit Card Debts

How to Avoid Credit Card Late Payment?

Late payment fee for credit card needs to be avoided and this can be achieved by following a few simple steps:

  • Keep a track of your due date

Even a one day late credit card payment can lead to additional charges and it is better to keep a track of your payment dates and have a clear understanding of your due date.

  • Set an auto debit

This is one of the simplest ways to avoid credit card late payment. You just need to set up an automatic debit system for your credit card bill payment. Once it is done, the day your bill is due, the amount will be automatically debited from the account.

  • Create reminders

You can create payment reminders on your credit card account, mobile phones, or emails to get alerts on the payment date so that you can easily pay your dues.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.