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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
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
My 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 help! -- In Trouble

Answer for the CreditCards.com expert

Dear In Trouble,
I 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.

Should 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.

Just 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.

I 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 savings account.

Place 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.

Take 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. Send your question to The Credit Guy.

Published: April 5, 2010


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Updated: 10-01-2014

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Bad Credit 22.73%
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