What happens if I miss a credit card payment?

Maybe work got super busy, or you were ferrying your kid around to soccer practices every weekend. Or perhaps you simply ran low on cash. Any way you cut it, missing a credit card payment is bad for your budget and credit score — but it isn’t a complete tragedy, as long as you don’t make a habit of it.

If you do miss your credit card payment, the most important thing you can do is take some time to understand why you’ve missed it in the first place. If it is just a matter of scheduling, like you forgot the due date, make a note on your calendar. Did you miss it for cash flow reasons? You can move your payment date. At the end of the day, taking your missed credit card payment as a lesson and taking steps to ensure it doesn’t happen again will make your minor credit misstep “worth” the trouble.

Let’s drill down on a few things to expect when you miss a credit card payment and some strategies to avoid missing in the future.

How does a credit card work, and why does it matter?

A credit card is simply a line of credit that a lender allows you to spend against, with the understanding that you’ll pay it back later. If you pay the credit card balance back in full each month, you won’t have to pay any interest on the balance. If you make smaller payments, all the way down to the minimum required payment each month, then the lender will charge interest on the remaining balance.

Credit cards are powerful tools. They allow you to spend more money than you have on hand at one time. They can also often come along with attractive rewards such as points for gift cards, cash back, or airline miles. Credit cards also tend to be more secure because your credit card is one step removed from your bank account, so you have an additional layer of protection from fraudulent purchases.

Take an example: If your ATM card number is stolen and used online, the cash that the thief spends comes out of your account immediately. The bank may be able to help you get it back, but in the meantime, you’re out of the capital. If, however, you use a credit card and the same unfortunate event happens, the credit card company will be able to investigate on your behalf and place a dispute hold on the fraudulent charge, meaning you won’t have to pay that amount.

However, the critical part to remember about credit cards is that when you use one, you’re also agreeing to repay the balance according to the timeline and agreement you have with the credit card company. If you do not, you will end up paying penalties and fees, ultimately outweighing the benefits of having the card.

What will missing a payment cost me?

Missing your credit card payment comes along with some penalties and fees that you have to keep in mind.

Interest

Interest will be due as long as you carry a balance from month to month. By not making a payment, you are also increasing the principal upon which you will have to make payments. Accruing interest can be very costly—credit card interest rates can range anywhere from 10 to 28%. Consider the cost of your balance increasing by 28% every time you don’t pay the total amount off; it’s not pretty. This is particularly harmful if you carry large balances from cycle to cycle.

Fees

Credit card companies will almost always charge a fee for missing a payment, sometimes as much as $40 per instance. Some credit card companies will offer consumers with higher credit scores a “fee forgiveness” option where they write off the first time you miss a payment. It’s important to note that any fees or penalties you incur will also be added to the principal, which means you will pay interest on fees as well.

A possible hit to your credit score

If you miss a payment and you don’t correct it for a month or more, you could take a huge hit to your credit score. Equifax and TransUnion are the two companies that produce credit scores in Canada. Credit card companies will report payment activities to one or both of these companies for inclusion on your credit report. Your report helps other lenders determine your creditworthiness, and lower scores can make it harder to get a credit card or any line of credit in the future.

Credit card companies won’t report the credit score immediately. Generally speaking, they will report missed payments in increments of 30, 60, and 90 days. So, for example, Joe Smith misses his credit card payment on June 1, realizes it on June 5, and makes a payment. He may still have to pay a fee but will not likely incur a credit report hit. Jane Doe, however, misses a payment on June 1 and doesn’t realize it until August 15, more than 60 days later. Not only will her credit report take a hit, but it could drop as much as 180 points.

Higher interest rate

If you frequently miss payments, your credit card company may decide to increase your interest rate. This can make borrowing and making payments more expensive over time.

Lower credit limit

Paired with a higher interest rate, a credit card company can also lower the amount of credit you can use. This gives you less flexibility in the amount you can spend on your credit card and increases the percentage of available credit you use, impacting your credit score.

Eventual loss of credit

In the most extreme of cases, a credit card company may drop you as a customer altogether if you miss payments over and over again. This happens rarely, but remember, credit card companies are in the business of making money. They’ll drop someone that doesn’t pay their bills and focus their attention on those that do.

So what do I do?

You know you missed a payment, and you know that it’s not good. So, what the heck do you do now? And how can you fix it?

Understand why you've missed a payment

One late payment does not make a bad customer. But the failure to learn from that one missed payment is indicative of a larger problem with spending and planning. The key is to understand exactly why you missed the payment in the first place. Did you just forget to pay it on time? Consider a calendar reminder. Did you not have the money to cover the payment when it was due? Why is that? If it’s because you ran into an unexpected expense that likely won’t occur again, you may not need to worry too much. If, however, you don’t have the money to cover the payment because you didn’t budget for it, you may need a more robust self-discussion about budgeting.

Pay the bill ASAP

Don’t wait. Once you realize you have missed a payment, make at least the minimum payment immediately. If you need more time to sort out a plan, that’s fine. But at the very least, make the payment to ensure that the credit card company does not report your missed payment to the credit bureaus.

Change the payment date

Did you know that you can change the date on which your credit card payment is due? You can! If you get paid on the 15th and the last day of every month but your credit card bill is due on the 14th, things could get tight, making it difficult to pay. Change the date to make making payments on time a bit easier.

Contact your lender

Despite some of the negative feelings we have about financial institutions, they want you to pay your bills. They don’t want to put you into collections or start repossessing items. So, if you’ve missed a payment or are having trouble paying, the first thing you should do (after paying the minimum) is call your lender. They will likely be happy to put you onto a more stable payment plan or set up other arrangements that will help you pay off your debt.

Missing a credit card payment here and there isn’t the end of the world, but it’s not good either. If you're missing your credit card payment frequently, consider whether your budget is working for you. You may be overspending on simple items like groceries or dining out. Consider too that your bills may be due at inconvenient times. Getting a hold of your budget, understanding why you missed a payment, and making a good plan for moving forward is key to ensuring you don’t pay any more than you have to each month.