Any number of reasons might cause you to miss making a credit card or loan payment, including being unemployed or short on funds, forgetting to set autopay, or being out of town on the bill’s due date. If you’ve missed a payment, you may wonder what kinds of penalties or repercussions are headed your way. Unfortunately, missing a payment tends to affect your overall financial health, not just one account, so knowing what to expect and what steps to follow if you have missed a payment can help you recover more quickly.

The impact of missing a payment is similar regardless of the type of payment involved: credit card, vehicle loan, mortgage, etc. Typically, the first thing that happens is you will lose your grace period and be charged a late fee. You may be hit with a penalty interest rate on your remaining debt. Eventually, especially if you continue to miss payments, you may see a decline in your credit score. If you miss a payment, it’s important to rectify the situation as efficiently as possible to mitigate the negative effects on your credit and increased costs associated with missed payments.

Grace Periods

  • A grace period is a period of time after which your payment is due but before the date when your lender will charge a late fee. Typically, a grace period lasts for 15 days. Payments made after the due date listed on the bill but prior to the end of the grace period will not result in a penalty.

  • If you make a late payment (beyond the end of the grace period), you will typically lose the grace period on any future payments due. Remaining payments must be made on or before their due date.

  • Depending on the contract, you may accrue interest on your balance during the grace period; although some lenders defer interest accrual until the end of the grace period. Note that credit card companies normally do not provide grace periods, though mortgage and education loan lenders often do. Check the fine print.

Late Fees

  • Once your payment is late (either after the due date or after the grace period ends, depending on the lender) you will likely be charged a late fee. For late credit card payments, you may be charged a one-time late payment fee of up to $30 the first time you miss a payment. This late payment fee may increase if you miss subsequent payments; companies are currently allowed to charge up to 100% of your minimum required payment in late fees, though there is legislation pending that proposes a cap on these fees.

  • The amount of any late fees for which you may be liable is laid out in the fine print of the lending contract and depends on the contract and the lender. Note that late fees must be “reasonable” and generally range from $25 to $50.

  • Late fees are added to your balance, meaning that over time, they accrue interest and grow unless promptly repaid.

Penalty Interest Rates

  • Specifically with regard to credit cards, you may become subject to the penalty APR (annual percentage rate) if you miss making a payment for 60 or more days. This rate can be much higher than the regular interest rate charged by your card – and may be as high as 29.99%. All new purchases will accrue at that rate, which may be maintained on your card indefinitely. To return to your original APR, you normally need to make six consecutive on time payments.

  • Even if you don’t get hit with a penalty APR, it’s important to realize that many lenders (especially credit card companies) charge daily interest, meaning that what you must pay in interest accrues very quickly. Taking steps to minimize your balance can help reduce the amount of interest you ultimately end up paying.

Decreased Credit Score

  • Your credit score is partially based upon your payment history. If you have a history of missed or late payments, your score will decrease – and a lower credit score can affect your ability to qualify for credit in the future, or, if you do qualify, can increase the interest rates you are offered – effectively making the credit you are approved to use more expensive.

    • Your credit score may also be referenced when applying for a cell phone or internet service plan, turning on utilities, and applying to rent or lease a home or vehicle. Property insurance rates also reflect credit scores, as low credit scores correlate to risk in other areas. With a low credit score, you may begin to experience increases in costs and declines in approvals for loans and services.

  • Most lenders report missed payments to the three major credit bureaus (Equifax, Experian, and TransUnion) after a payment has been late for at least 30 days. If you make a payment within that 30-day period, you might avert the negative hit on your credit report. There is no guarantee that making a payment will work, because lenders may vary the date on which they report to the bureaus, but it’s worth making an effort to avoid a decrease in your credit score. Once reported, late and missed payments may affect your credit score for seven years before rolling off of your credit history.

  • Note that the more recent a late payment is, the larger the impact on your credit score. As more and more on-time payments are made, your credit score will slowly begin to recover, provided you maintain other good credit habits.

What to Do After You Miss a Payment

Once you miss a payment, the clock starts ticking, so it’s important to act quickly.

If you have the funds, make the late payment immediately using the fastest method – initiate a payment online or by phone instead of paying by mail. Once you’ve made the late payment, it’s worth contacting your lender to explain what happened. If this is your first missed payment, the lender may waive your late fee. If this is a recurring problem, ask what your options are. You may be able to adjust the bill’s due date so that it lands right after you get paid each month or persuade the lender to lower your minimum payments.

If you continue to miss payments, you may face legal consequences. Typically, after at least 180 consecutive days of missed payments, your lender can close your account and report the outstanding balance to a collection agency. However, some lenders may report the debt to a collection agency before six months have passed. If the lender chooses to pursue legal action, it may result in additional legal fees for you. If the lender prevails, your wages may be garnished until the balance has been repaid.

The consequences of missing a payment can be dramatic and long-lasting, but you can sometimes recover by taking quick action and contacting your lending company. For help creating a debt reduction or spending plan and making sure your expenses don’t outpace your income, our Education Team is available – you can contact them at education@navymutual.org.

The Navy Mutual blog is meant to provide basic information that generally applies to most situations and should not be construed as legal or tax advice. It is not meant to replace the services of a financial planner, insurance counselor, attorney, or tax adviser. Information contained in this blog post may change on occasion.