Are you always making late payments for your credit card? Or you may think missing a few payments is not a big deal. The bank or credit card company won't show up at your door after you miss one payment, but they're taking action behind the scenes. How your creditors respond to late payments can continue to affect you for months, and even years, to come. Knowing the consequences of a late or missed credit card payment should be enough to make you take extra effort to pay on time.
Increased Interest Rate
When you miss your credit card payments, the issuers can increase your interest rate. Reversely, if you are diligent and prompt in settling at least the minimum payment for your credit card, most banks will reward you with lower interest rates. The longer the time you consistently pay your credit card bills promptly, the lower the interest rate charges.
Bad Credit Score
Late repayments will go on your credit report which all banks will have access to. Banks with a direct link to Bank Negara will have access to your report via the Central Credit Reference Information System (CCRIS) which keeps records for 12 months. Banks can also obtain your credit report from CTOS, which keeps records indefinitely as a historical archive. Banks and financial institutions will verify your financial status by using credit reports generated by CCRIS and CTOS to verify your financial status. Once a bank sees your pattern and how you’ve been missing payments here and there, they will be reluctant to approve your loan applications. This will work against you should you want to take a mortgage, a personal loan, or any other loan from the bank. It will also make it difficult should you want to take on another credit card.
Related: 5 Ways To Improve Your Credit Score
Late Payment Charges
When you’re late in paying for a credit card, most companies will charge you late payment fees. Although the charges imposed vary between banks, it is usually a minimum of RM10 or 1% of your total outstanding balance, or whichever is higher. You should also note that you will be charged an interest rate until the balance you owe is fully paid. You may think that 1% doesn’t seem like a large amount, but if you make it a habit those charges can add up.
You should also take note that when you miss a payment, on top of having to pay the late payment charges, you will also have to pay the interest charge which is imposed on the outstanding balance after the repayment due date. Before you know it, you’ll be raking up the numbers and you’ll soon start seeing larger amounts with your credit card statements as a result of your late payment habits.
Unwanted Calls And Visitors
Another motivation to make sure you pay off your credit card bill even if it is the minimum payment each month is to avoid being pestered by debt collectors. Doing so will save you from the hassle of receiving calls from your creditors, especially when you’ve missed more than one payment. Worse is when you are assigned a debt collector, who may not only be visiting you at home but may even turn up at your workplace to claim the debt you owe.
See also: Need Free Help Managing Your Debts?
The Dreaded B Word
Under the Bankruptcy Act 1967, a person can be declared bankrupt if a creditor shows that there is unpaid debt amounting to RM30,000 with a default of 6 months. You may think the figure is a long shot but if you don’t keep up with your payments, you may not realize it as the amount quickly snowballs. Once you are declared bankrupt you will lose some privileges such as being barred from leaving Malaysia and the Director General Insolvency (DGI) will be appointed to manage your assets to settle all of your outstanding debts.
The DGI will be appointed to the person who has been declared bankrupt by the court. If you are a professional you will not be able to practice certain professions (among which are law, accounting, and the medical field) and your accounts will also be frozen.
You can avoid all of the hassle and problems that can happen by being responsible with your credit card payments. Try out these helpful tips below to stay on top of your expenses.
Credit cards can be a powerful financial tool but you have to find the right one to optimize your usage.