Four negative effects of irregular credit card payments

Here are some of the major pitfalls with irregular payments on credit card statements:

Attracts interest on arrears and financing fees

Credit card issuers will charge a late payment fee if you fail to repay the minimum amount by the due date. As a rule, you keep 5% of the total invoice amount as a minimum amount. In addition, any existing Equivalent Monthly Installments (EMIs) on your credit card along with various applicable fees will also be added to the minimum amount due. “The late payment fee charged for non-payment of the minimum amount due can be up to ₹1,300 per billing cycle, “said Sahil Arora, director of Paisabazaar.com.

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“Also keep in mind that paying less than the entire credit card bill can result in high financing costs of around 23% to 49% pa of the unpaid bill amount. While paying the minimum amount in good time can avoid late payment fees , you will still be charged the applicable funding fees for the unpaid amount, “added Arora.

Adversely affects creditworthiness

Your credit score is a three-digit numeric representation of your credit score. It is one of the first filters that lenders consider when evaluating your loan application. Because your creditworthiness is calculated based on your loan repayment history, an infrequent repayment of your credit card bill could affect your creditworthiness. Decreased creditworthiness can also affect your future credit and credit card eligibility.

Vivifi India founder and CEO Anil Pinapala said that irregular payments mean you are having difficulty paying back and lenders tend to consider you risky. Even a single late payment can affect your creditworthiness and remain on your reports for up to seven years, affecting your creditworthiness for the entire period. “Payment history is one of the most important scoring factors that will determine your future access to credit,” he said.

Revocation of the interest-free grace period

The interest-free period refers to the length of time between the date of your credit card transaction and the payment due date. This period can generally be anywhere from 18 to 55 days. Credit card transactions made during this period will not incur any interest charges in the form of financing fees as long as the fees are paid back by the due date.

“If you fail to pay all of your credit card fees on time, the card issuers will revoke your interest-free period and charge funding fees for new credit transactions until all outstanding fees are paid back. Therefore, your new transactions will attract funding costs in the next billing cycle,” said Arora.

Revocation of previously approved loan offers

Lenders tend to offer you pre-approved loans and credit card offers based on your creditworthiness and credit profile. Since irregularities in your repayment history can lead to a bad credit rating, this can lead to the fact that you are excluded from such offers and the associated benefits. In general, pre-approved loans and other offers have better product features, faster turnaround times, and even lower costs. Such offers can give you a good idea of ​​your credit and credit card eligibility and can also help negotiate with other lenders to get a better deal.

For example, credit card issuers offer their customers pre-approved credit against credit cards based on their disciplined repayment history, transaction pattern, card type, etc. These loans have near-instant payouts, repayment terms of up to 5 years, and can even include loan amounts that exceed the credit limit with some issuers.