TIPS Late Charges:
What Your Late
Payments Tell Others
Mary Ann Holland, Extension Educator
University of Nebraska Cooperative Extension
Jenny opened her credit card statement and was surprised to find a $29 late fee added to her balance. She was noticeably upset, frustrated and confused. Jenny knew that she had waited until the last day, a Friday, to mail her credit card payment, but what she did not realize was that a postal holiday following the weekend delayed her payment from reaching the credit card payment center by the deadline to be credited to her account. As a result, a late fee was assessed and added to her balance.
While that may seem harmless, in reality it can be damaging to one’s credit history. Jenny, a new college student, had been a credit card holder for only a short period of time. She had taken advantage of a "0% Introductory Offer." The 0% interest rate was in effect for six months, or so she thought. However, since her credit card payment was received past the deadline the account was assessed a late fee, which also triggered the account to be assessed a much higher interest rate in the future. Additionally, the late payment was reported to the major U.S. credit reporting agencies.
Credit card debt is a form of unsecured debt. There is no collateral to access if the borrower defaults on the loan - or credit card charges the user has made. Even a single late payment can blemish an individual’s credit record. In the event Jenny had more than one late payment to her credit card company, or loan company where she borrowed money for a car, or a past due balance on a medical bill, all that becomes part of Jenny’s "financial credit history." Future lenders or landlords who have access to her credit history may determine that Jenny represents a poor financial risk, even though she may earn a substantial salary.
Establishing a good credit history is a very important step for young adults. Repayment of debt is a responsibility not to be taken lightly. Secured loans like those used to buy vehicles, unsecured loans (primarily credit cards), and how promptly one repays debt are important in determining how the consumer will be treated by lenders in the future.
Jenny vowed to do a better job in the future by always mailing her credit card payment at least two weeks before the due date. She was also careful not to incur excess debt and never exceeded her credit card limit. By taking these steps, she will not erase the blemish on her credit history, but will demonstrate a record of on-time payments and low balances which, in time, will diminish the significance of the late payment.
What have you done to build or maintain good credit? Let us know at unlforfamilies.unl.edu. Click on TIPS and follow the links to the feedback form.
