Credit cards have made the shopping experience a great deal easier than in the days of cash and checks and it’s doubtful that online shopping would have taken off without them. Despite being a lending facility, they can actually help to save money by allowing purchases to be made from far flung destinations offering better deals.
However, the reliance on credit cards can lead to a casualness over repayments, especially as more and more people are struggling to pay their bills and a missed payment no longer carries the stigma it used to have.
Many people think that if they haven’t missed any payments in the past, one overdue repayment won’t make much difference or that it doesn’t matter if the payment is late, as long as it is made up at some point. This view is not shared by lenders, who take a tough stance on missed or late payments, even for those with previously immaculate credit records.
With economic times still very challenging, lenders are very wary about providing credit facilities and take a long hard look at any applicant, needing little or no excuse to bump up the interest rate offered to cover a potentially higher risk. Any indication that you might not pay your bills on time or might skip payments altogether could very well mean that you miss out on the best deals available in the market, because your credit record excludes you.
Alternatively, for those who have been late repeatedly or missed more than one payment, it may not be possible to find a lender who is willing to accept your application. You may well ask yourself, how would a new lender know about a late payment?
However, it is not just arrears that get reported to credit bureaus – the entire management of your account is lodged every month. In other words, lenders are able to see not only whether you are behind, but whether you make your payments on time and how often you are late.
They are also able to see when you were late with your payments and a change in behavior can be viewed as a warning sign that all is not well with your finances. This means that someone with a previously good credit file who is suddenly skipping payments may be viewed with even more alarm than an applicant who has frequently been a bit late paying their bills.
It is not just new lenders who will be able to view your credit file – existing card providers can also see how you manage other accounts. Making late payments with one provider could mean that you find the future interest rate goes up with other lenders, thanks to the universal default rule.
This law entitles credit card firms to raise the interest rates due to a change in your credit status since you made the application. However, they are not allowed to apply any increase in rates retrospectively, so any hikes will only apply to new balances accrued. So next time you think about delaying the payment on your card, ask yourself whether you can afford the knock-on effects that a late payment can bring.