Are you consistently making late payments on your credit card? Perhaps you believe that missing a few payments won't have serious repercussions. However, the reality is that your bank or credit card company takes action behind the scenes when you miss payments, and the consequences can affect you for months and even years. Understanding the consequences of late or missed credit card payments should motivate you to prioritize timely payments.
Increased Interest Rates
When you fail to make timely credit card payments, issuers can raise your interest rate. Conversely, if you consistently pay at least the minimum amount on time, most banks will reward you with lower interest rates. The longer you maintain a record of prompt payments, the lower your interest rate charges will be over time.
Negative Impact on Your Credit Score
Late repayments are recorded on your credit report, which is accessible to all banks. Institutions with a direct link to Bank Negara can access your report via the Central Credit Reference Information System (CCRIS), which retains records for 12 months. Banks can also obtain your credit report from CTOS, which maintains records indefinitely as a historical archive. Financial institutions use these reports to assess your financial status. When a bank observes a pattern of missed payments, they may hesitate to approve your loan applications. This can hinder your chances of obtaining a mortgage, personal loan, or additional credit cards.
Related: 5 Ways To Improve Your Credit Score
Late Payment Charges
When you're late in paying your credit card bill, most companies will impose late payment fees. These charges vary between banks but typically amount to a minimum of RM10 or 1% of your total outstanding balance, whichever is higher. It's important to note that interest will continue to accrue until the outstanding balance is fully paid. While 1% might not seem substantial, habitual late payments can lead to significant cumulative charges.
Unwanted Calls and Visitors
To avoid being ‘haunted’ by debt collectors, it's crucial to pay off your credit card bill, even if it's just the minimum payment each month. Consistent late payments can result in incessant calls from creditors, especially if you've missed multiple payments. In more severe cases, debt collectors may visit your home or workplace to collect the debt you owe, causing considerable inconvenience.
The Risk of Bankruptcy
Under the Bankruptcy Act 1967, a person can be declared bankrupt if a creditor can demonstrate unpaid debt amounting to RM30,000 with a default of 6 months. While this amount may initially seem distant, it can escalate rapidly if you neglect your payments. Once declared bankrupt, you may lose certain privileges, such as the ability to leave Malaysia. The Director General Insolvency (DGI) will be appointed to manage your assets to settle outstanding debts. This situation can also impact your ability to practice certain professions, such as law, accounting, and medicine, and your bank accounts may be frozen.
To avoid these hassles and potential financial pitfalls, it's essential to be responsible with your credit card payments. Consider implementing the following tips to manage your expenses effectively:
Simple tips to manage your expenses
- Pay Your Credit Card Bills on Time
Timely payments prevent late fees and maintain a good credit score. Use auto-pay or set reminders to stay punctual.
- Explore The Right Personal Loan to Clear Off Your Debt
Personal loans often come with lower interest rates compared to credit card interest rates. By using a personal loan to pay off your high-interest credit card debts, you can save money on interest payments over time. Explore the personal loan services available HERE where you can compare various loan options, interest rates, and terms to find the best solution that aligns with your financial goals and circumstances.
- Monitor Your Credit Card Statements
Regularly review statements to spot errors and unauthorized charges. It helps you track expenses and detect fraud.
- Create a Budget and Track Spending
Budget by categorizing income and expenses. Tracking spending highlights areas to cut back and save money.
- Seek Financial Advice in Difficulties
When facing financial challenges, consult experts like financial advisors or credit counsellors for tailored solutions.
Credit cards can indeed be valuable financial tools, but responsible use is key to optimizing their benefits while avoiding the pitfalls of late or missed payments. Consider exploring credit card options through CompareHero to find the card that best suits your needs. Making informed choices about your credit card can help you manage your finances effectively while avoiding the pitfalls of late payments.