PremiumFailing to pay credit card bills on time is among the biggest financial mistakes one can commit. Irregular repayment of credit card dues leads to adverse implications that can prove detrimental to your financial health.
Here are some of the major pitfalls of irregular credit card bill payments:
Attracts late payment fees and finance charges
Credit card issuers levy late payment fee whenever you fail to repay the minimum amount by the due date. They generally keep 5% of the total bill amount as the minimum due amount. Additionally, any existing Equated Monthly Instalments (EMIs) on your credit card along with various applicable charges will also be added to the minimum amount due. "The late payment fee levied on the non-payment of the minimum amount due can be as high as ₹1,300 per billing cycle," said Sahil Arora, director, Paisabazaar.com.
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"Also, remember that paying anything less than the total credit card bill’s dues can attract hefty finance charges ranging about 23%-49% p.a. on the unpaid bill amount. While the timely payment of the minimum amount due can save you from late payment fee, you will still be charged the applicable finance charges on the unpaid amount," added Arora.
Adversely impacts credit score
Your credit score is a three-digit numerical representation of your creditworthiness. It is one of the first filters factored in by the lenders while evaluating your credit application. Given that your credit score is computed based on your credit repayment history, irregular repayment of your credit card bill can pull down your credit score. A reduced credit score may also hurt your future loan and credit card eligibility.
Anil Pinapala, founder & CEO, Vivifi India said irregular payments implies you are having difficulty repaying and lenders tend to view you as high-risk. Even a single late payment can pull down your credit score and stay on your reports for up to seven years, impacting your creditworthiness during the entire period. "Payment history is one of the most crucial scoring factors that will determine your access to credit in the future," he said.
Withdrawal of interest-free grace period
Interest-free period refers to the duration between the date of making your credit card transaction and the due date of its payment. This period can generally range anywhere between 18 and 55 days. Credit card transactions carried out during this period do not attract interest cost in the form of finance charges, as long as the dues are repaid by the due date.
"In case you fail to timely pay your total credit card dues, card issuers will revoke your interest-free period and levy finance charges on fresh credit transactions until the entire outstanding dues are repaid. Hence, your fresh transactions in the subsequent billing cycle will also attract the applicable finance charges," said Arora.
Withdrawal of pre-approved loan offers
Lenders tend to provide you with pre-approved loans and credit cards offer based on your credit score and credit profile. As irregularities in your repayment history can result in a poor credit score, this can make you ineligible for such offers and the associated benefits. Generally, pre-approved loan and other offers have better product features, lower processing time and even lower costs. Such offers can give you a fair idea of your loan and credit card eligibility and may also help in negotiating with other lenders for getting a better deal.
For instance, credit card issuers offer pre-approved loans against credit cards to their customers based on their disciplined repayment history, transaction pattern, card type etc. These loans have near-instant disbursals, repayment tenures of up to 5 years and may even involve loan amounts over and above the credit limit by some issuers.
