Late payments don't justify rate instant rate hikes anymore
Passage of the Credit CARD Act protects those who slip up once in a while
By Todd Ossenfort
The Credit Guy
Dear Credit Guy,
husband and I are trying to pay off our debt. I keep track of the bills on Quicken
and try to pay everything early. Today I was 3.5 hours late paying a credit
card bill. Not like me at all, and I've never been late otherwise. Now I'm deathly
afraid my interest rate will be raised. I tried calling after I paid my bill
online. They have agreed to waive the late fee, as I have been with them
forever, but I can't afford higher interest on this card. Is there anything I
can do? It seems so unfair the bill was just a few hours late today. Please
-- In Trouble
Dear In Trouble,
always enjoy the opportunity to give someone good news. With the Credit Card Accountability, Responsiblity and Disclosure Act of 2009 (CARD Act) in effect,
card issuers can no longer raise your interest rate for a late payment that is
one hour, one day or even one month late. You must be 60 days late for the card
issuer to raise your interest rate on existing balances. In addition, the card
issuer must let you know in writing that your interest rate will increase.
you receive notice that your interest rate will increase on new purchases (the
only rate they would be allowed by law to raise) you will have the opportunity
to opt out of the increased rate and continue to make payments at the original
interest rate. However, if you opt out, the account will be closed and you will
no longer be able to use it.
so there is no confusion, I am in no way saying that making a late payment on
your credit card is OK. Don't do it. The Credit CARD Act may prevent an
interest rate hike for a late payment, but the creditor can still report to the
credit bureaus that the payment was made late. In my experience, the majority
of creditors won't report a late payment to the credit bureaus until you are
more than 10 days late. To protect your credit, on-time payments are essential, since 35 percent of your FICO credit score is based on payment history.
notice in your question that you state you cannot afford to pay a higher
interest rate on this credit card balance. I'm glad to hear you and your
husband have committed to paying off your unsecured debt. To avoid ending up
with unwanted debt in the future, it is important to have a spending plan for your
income and to save for unexpected expenses. Even while you are paying down your
debt load, I would recommend that you also put something aside each month in a
half of any tax refund, job bonus or pay raise into savings along with at least
a small amount each month (even $25 a month will add up in time). In addition,
once you pay off a debt, keep making the payment you were making on that debt,
half toward any remaining debt and half into savings. Once you reach six to 12
months of living expenses in your savings account, you can save for other things
such as holiday expenses, vacation, retirement, etc.
care of your credit!
See related: Credit card reform arrives in the form of the Credit CARD Act, Credit CARD Act prevents sudden rate hikes, not annual fees, Credit CARD Act interest rate protections already in effect, Consumers gain the right to opt out of an APR increase
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
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Published: April 5, 2010