Late Payment on your Phone Bill Send Your Credit Card Interest Rate Soaring

Do you know what can happen when you miss a single credit card payment? Well I can tell you it’s not anything good. A missed credit card payment can not only effect the rates and payment amounts on the credit card you were late on but also every other creditor that you have relationships with. Many creditors will have a standard default finance charge paragraph (or two) that says something like:

“Finance Charges for Late Payment or NonPayment:If you do not pay at least the Minimum Monthly Payment by the Payment Due Date one time during the Introductory Period, the Introductory Period will terminate and the Standard Rate stated in the Table of Interest Charges will take effect as of the first day of the billing cycle following your late payment.”

You may also be subject to what’s now known as a “universal default” clause. This little bit of language basically states that if you’re late on ANY payments to ANY CREDITOR it will cause your interest rate on your credit card to jump up to the “penalty rate.” That penalty rate in 2005 was around the 24.43% rate. Definitely not a rate you would wish for and probably not something you would expect to be paying just because you applied for a new loan or were a few days late paying your cellular service bill. This penalty rate can be quite a shock since your creditor is under no obligation to let you know that it has been applied – and you may not have even missed a payment on that particular credit card. That great interest rate of 7.9% that you signed up for isn’t guaranteed and some creditors go out of their way to find a reason to increase it. Some of the events that can trigger this interest rate rise are:

Missed mortgage payment
Missed telephone or utility payment
Decline in your credit score
Applying for a new loan
Getting a new credit card
Bouncing a check
Exceeding your credit limit

Many of the major credit-card companies such as Chase, Citi, American Express and Discover have changed their policies to do away with this universal default clause but you should check your specific credit card terms to make sure that your cards don’t have this program. You can take some basic steps to help avoid a potential late payment trigger by doing things like:

Set up auto-drafts for your monthly bill payments
Don’t forget about the time it takes for your payment to process – it can take a few days for the payment to actually register with your creditor
You can request changes to the payment due date to make it more convenient for you

Just remember that most creditors make their money off of the interest that they charge you – and any reason to increase that interest rate will be taken advantage of. Try to pay for things with cash first – if you cannot then definitely make your payments on time or you may get stuck in a debt spiral of never ending interest payments.

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