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4 Consequences of Having an Overdue Credit Account

If you've ever made a late payment, you're not alone. According to the National Foundation for Credit Counseling, roughly 1 in 4 adults don't always pay their bills on time.

Many Americans struggle with making payments on time in their 20s and 30s, and sometimes this habit can extend far past those age groups. Having an overdue credit account can be damaging to your credit score and to your wallet.

Late Fees

Late payments often results in late fees. Additionally, if you're near or at your credit limit sometimes a late fee can result in causing your credit account to go over its limit. This can often be more damaging than a late fee to an overdue credit account. Making your payments on time will help you avoid going over your credit limit and also keep more money in your pockets. Late fees are incredibly expensive, costing anywhere from $25 to even a percentage of the balance on your overdue credit account.

Increased Interest Rates

If you miss a payment, sometimes your interest rate can increase. This unintended consequence can cost you thousands depending on the balance on your overdue credit account. The average interest rate for a credit card in the US is 16.05 percent, if you make a late payment your interest rate could easily double. Imagine paying over 30 percent interest on a bill you're already having trouble paying. This could also raise your balance over its limit costing you even more money.

Lower Credit Score

The heaviest factor in your credit score calculation is your payment history accounting for 35 percent of your total score. It's also the fastest way to improve or damage your credit score. Even one late payment can drop your score several points, which could come with the consequence of higher insurance rates, being denied for a mortgage or auto loan and even being disqualified for a new job. Another thing to think about is the fact your credit utilization accounts for 30 percent of your overall score. If you're using more than 30 percent of your overall available credit this could also drastically reduce your score. I know from experience, I was at 32 percent utilization and paid it down to 28 percent. My score went up 31 points by reducing my utilization rate by just four percent.

Account Closure

In cases where you are 60-90 days overdue on your credit account, the creditor could choose to close your account and turn you over to collections. Depending on the type of credit account this could be a serious issue causing a foreclosure on your home a repossession of your vehicle. This is extremely damaging to your credit score and your ability to secure financing in the future.

The best advice I can give you is to call your creditor when you think your payment is going to be late. Sometimes they'll offer you a grace period or a payment plan to help you get current and stay current on your payments. Life happens and sometimes unexpected situations arise that cause you to make a late payment. Communication is key. Most creditors will appreciate your honesty and work with you.