One Late Payment Never Cost So Much
Creditors monitoring credit reports find ways to raise interest rates
For Immediate Release: October 2, 2003
ROCKVILLE, Md. — If you're like many Americans chances are you've paid a bill or two late at some point. And while fees for paying late have been rising over the past few years many creditors have begun to raise interest rates when you make a late payment, and not just on the card you paid late.
"These days many creditors are monitoring your credit report looking for late payments and problems on your other accounts," said Steve Rhode, president and co-founder of Myvesta.org, a nonprofit financial management organization. "When you're late on one account, it sends a signal to your other creditors that you've become a bigger risk so they jack up the interest rates on your cards even if you've never been late with them."
The cost of one late payment can be extremely large when you add in the penalty interest rates. If you have one credit card with a $2,500 balance at a regular 14 percent interest rate, and you only make the minimum 2.5 percent monthly payment, it would take you almost 16 years to pay off the balance and cost you an additional $1,980 in interest. If you take the same balance and monthly payment but use a penalty interest rate of 28 percent, it would take 101 years to pay off the balance and cost an additional $30,165 in interest.
"These days one late payment means a lot more than just a $39 late fee or a mark on your credit report," Rhode said. "When you add in the extra costs from the inflated interest rates, that late payment can cost thousands of dollars and could prevent you from ever paying off that debt."
According to Rhode, it's become more common in recent years for creditors to monitor their customers' credit reports.
"With technological gains made over the past few years it's become easier and cheaper for creditors to monitor their customers," Rhode said. "Creditors can automatically scan your credit report every month or even every day if they want. They know the status of your payments to your other creditors almost the instant you slip up."
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MyvestaSM is dedicated to helping people create healthy financial lives. The organization provides a wide range of materials to inspire and inform people so that they can break down their barriers to financial and personal success. For more information visit Myvesta.org online.
