Credit Card Late Fees: How They Work

According to data from the Consumer Financial Protection Bureau (CFPB), credit card users paid $12 billion in late fees in 2020. The report also found that low-income cardholders and those with lower credit scores were more likely to face credit card late fees.

Late fees can add stress to your personal finances, usually when you can least afford them.

Keep reading to see how late fees work, how they affect your credit score, and what you can do if you’re facing a late fee.

What Are Credit Card Late Fees?

A late fee is a fee a credit card issuer charges if you don’t make your credit card payment by the due date of your billing cycle.

If you miss a payment or make a late payment, your late fee will show up on your next billing statement.

You could also face a late fee if you don’t pay at least the minimum payment for your account.

For example, your credit card requires a minimum payment of $35 each billing cycle. You pay $25 by the payment due date. Your credit card company could still issue a late fee because you didn’t pay enough.

Check your credit card agreement for more information on your monthly payment requirements.

Your agreement will list important information regarding fees and other charges, like interest.

How Are Late Fees Calculated?

Credit card companies often charge late fees based on whether you’ve missed one payment or have a habit of repeated missed payments. If you miss multiple payments in six months, you’ll likely accrue a higher late fee.

Luckily, credit card companies can’t charge as much as they want for late fees. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) helps protect consumers from runaway late fees. The law is reviewed by the CFPB each year to determine the maximum late fee amount based on current inflation.

The maximum amount a credit card company can charge for a first-time late fee in 2022 is $30. They can charge you up to $41 for subsequent late payments within six billing cycles.

Credit card companies can’t charge you a late fee that’s higher than your minimum payment amount, however.

Let’s say your minimum payment amount is $25. You miss your payment date. Your credit card company can’t charge more than a $25 late fee.

Tier-Based Late Fees

Some credit card issuers determine late fees based on the current balance of your account.

They’re still not allowed to charge you more than the maximum credit card late fee set by the CFPB, though.

For example, your fees might increase if you have a higher card balance, such as:

• Balances up to $1,000: $10 fee
• Balances of $1,001-$2,000: $20 fee
• Balances of $2,001 or more: $30 fee

Do Late Fees Impact My Credit Score?

One late fee won’t necessarily hurt your credit—so long as you remedy the situation in a timely manner.

Credit card companies generally don’t report late or missed payments to the three major credit bureaus (TransUnion, Equifax and Experian) for a full billing cycle.

Most billing cycles are around 30 days, but it’s best to double-check your card agreement. So, if you miss your payment by a day or two, it may never hit your credit report.

If you don’t make at least the minimum payment within this grace period, however, your credit card company could report your late payment. This can hurt your credit score.

Payment history is the biggest factor in your FICO credit score. Lenders don’t want to lend money to someone who has a history of missing payments. It can be a signal that the borrower doesn’t have the cash to cover their bills.

A positive payment history, on the other hand, shows lenders you pay debts on time.

How Do Late Fees Affect My Credit?

You want to make on-time payments. Just because a late payment may not hurt your credit score doesn’t mean you’ll be consequence-free.

Past-due payments can affect your credit card—from perks to your interest rate.

Common penalties for making late payments include:

• Penalty APR: If you’re at least 60 days late on a payment or miss two consecutive payments, your credit card company may raise your interest rate. Known as a penalty APR, your credit card interest rate may jump up to the top of the variable range in your agreement. 
• Lower credit limits: Credit card companies can lower your credit limit at any time. If you’re regularly missing payments, they might lower your limit to reduce their risk. This could potentially hurt your credit score by decreasing your total credit amount.
• Rewards suspension: Rewards credit cards are a great way to earn miles for travel or get cash back for purchases. You’ll need to keep your account in good standing to keep getting rewards. Card issuers can suspend rewards for accounts that are late on payments. You may even have to pay a reinstatement fee to get them back.
• No credit limit raises: Were you hoping to apply for a credit limit increase? You may not qualify if you make late payments.

How Late Fees Benefit Credit Card Companies

Late fees make up over 99% of credit card penalty fees, according to the CFPB. That means credit card companies are making a lot of money on them.

The CFPB also notes that smaller banks and credit unions tend to charge less in late fees—usually $25 or less.

Large credit card issuers, however, tend to charge the maximum fee allowed by the law.

Can You Get a Late Fee Waived?

Many credit card companies will waive a late payment fee, especially if it’s your first late payment.

Some carriers are even including an automatic fee waiver for the first time you make a late credit card payment.

Others require you to call customer service and ask to have the fee waived.

Are There Credit Cards With No Late Fees?

Credit cards with no late fees are extremely rare, but they do exist.

Be sure to shop around when looking for a credit card. While a card with no late fees could help you save on fees, you may see the cost somewhere else.

For example, you might have a higher interest rate or have to pay an annual fee.

Protecting Yourself Against Credit Card Late Fees

How can you avoid late fees on your credit card?

The simplest way is to pay your bill on time. Unfortunately, it’s not always easy. Sometimes life happens and you accidentally miss a payment. Or, your car breaks down and you have an unexpected car repair bill that takes priority.

Try these tips to help you protect yourself from late fees:

• Automate payments: Setting up automatic payments helps eliminate your chance of paying a late fee. Make sure you set the payment for at least your minimum payment. You should also be sure you keep enough cash in your bank account to cover the payment.
• Make multiple payments: If you’re struggling to make the minimum payment on the due date, try splitting it up throughout the month. You can set a reminder to pay part of your balance on each payday.
• Use a card with no late fees: If you’re struggling to make your payments on time, you might want to consider a card with no late fees. Keep in mind that you may have to pay a monthly or annual fee. However, this could end up being less expensive than recurring late fees.

Bottom Line

Credit card companies make a lot of money on late fees, so there are few incentives to help you make your payment on time.

You can help yourself by setting up an automatic payment for your minimum monthly payment.

That way, you can avoid late fees and help keep your credit score on track.