The Interest Rate Minefield
What happens when your credit card payment is late?
Most credit card companies have modified their terms and conditions so they can now charge a default interest rate if even one payment is late. Those default rates tend to hover around 30%! I’ve seen 27%, 28%, 29%, 30% and even higher.
And sometimes, the default interest rate may be applied (changing the interest rate from 0% to 29%!) when the payment is made on the due date, because they didn’t post it until the next day. The first time that happens, you may be able to get them to change it back by making a phone call to the 800-number on the back of your card or at the top of your statement.
But if you’re not watching your statement carefully each month, you might not even notice they've jacked up the interest rate until you realize the balance is growing a lot faster than it should be. It will be much more difficult to get them to reduce it retroactively, so be sure to stay on top of it.
How can you protect yourself?
- Be sure to read the fine print in ALL your credit card account terms and conditions, and know exactly what might trigger a default rate.
- Make sure you make the payment early enough for them to post it by the due date (and some companies can take up to 5 business days – an entire workweek - before they get it posted).
- Then be sure to check the interest rate shown on your statement every month, to make sure it hasn’t crept up without your knowledge
Another serious “mine” to watch for: Many credit card companies have added terms permitting them to invoke a “universal default.”
What that generally means is that if you are late on a payment (any payment), they can jack the interest rate up to the default rate on every account you have with them! It also means they can continually monitor your credit rating, and if they see that another creditor has reported a late payment on your account, they can jack up your interest rate to the default rate on their account, even if you’ve made every single payment on that account on time!
According to www.creditcards.com, as of 2004, 44% of credit cards carried universal default terms.
Again, carefully watch your payment dates, and be sure to make your payments on time, giving the credit card processor at least 5 business days to post the payment before the due date!