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March 28, 2024
How to Avoid Late Fees and Damage to Your Credit
How to Avoid Late Fees and Damage to Your Credit
Current regulations allow a credit card issuer to charge up to $30 for an initial late payment. If a consumer is late again within the next 6 billing cycles the fee can rise to a whopping $41. These late fees are added to the outstanding balance, thereby also accruing interest if not paid.
In research cited by the Consumer Financial Protection Bureau (CFPB), the burden of late fees falls disproportionately on consumers in "… poor neighborhoods… majority-Black areas…, and… people in areas with the lowest rates of economic mobility…" (1)
CFPB Lowers Credit Card Late Fees
Effective May 14, 2024, the late fee for an initial and subsequent late payment will be capped at $8, unless the credit card issuer can prove their real collection cost exceeds $8. The "cost of collection" in this case means before the debt is "charged off" (deemed uncollectable, usually after 180 days of delinquency).
In addition, credit card issuers will not be permitted to raise the $8 cap based on an increase in the Consumer Price Index as they are permitted to do under the pre-May 14th rules.
How to Avoid Late Fees and Damage to Your Credit
While the roll back of the excessive late fees is a welcome relief to many consumers, there are ways to avoid even the $8 late charge. More importantly, to avoid possible damage to your credit and credit score you must take action before the initial missed payment is 30 or more days late. Here are a few tips to avoid late payments:
Schedule reminders using your phone calendar app.
Schedule automatic payments (if you have a cushion in your accounts to avoid overdrafts).
Request a change to payment due dates to align with when your payroll checks are deposited.
Call the creditor before or no later than the due date to request an extension and a waiver of the late fee. This will help you completely avoid being treated as missing a due date. The extension date is the amended due date for that specific payment. Make sure the extension date is one you can meet.
Request a waiver of the late fee if you have never missed a payment before, or if it is rare in your payment history with that specific creditor.
By following the foregoing suggestions, not only are you likely to avoid the late fee, but you will avoid the number one cause for a decreased credit score, late payments.
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