It's not an issue if you pay on time, and some credit cards don't charge it at all. But those that do can impose this sky-high interest rate for paying late — and it could last six months or more.
Updated Jun 19, 2024 9:52 a.m. PDT · 3 min read Written by Gregory Karp Senior Writer Gregory KarpGregory Karp is a former NerdWallet writer and an expert in personal finance and credit cards. A journalist for more than 30 years, he has been a newspaper reporter and editor, authored two personal finance books and created the "Spending Smart" syndicated newspaper column. His awards include national recognition several times from the Society for Advancing Business Editing and Writing.
Assigning Editor Kenley Young
Assigning Editor | Credit cards, credit scores
Kenley Young directs daily credit cards coverage for NerdWallet. Previously, he was a homepage editor and digital content producer for Fox Sports, and before that a front page editor for Yahoo. He has decades of experience in digital and print media, including stints as a copy desk chief, a wire editor and a metro editor for the McClatchy newspaper chain.
Fact Checked
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Skipping a couple of credit card payments in a row could not only hurt your credit rating and cost you late fees, but it could also cost you more in interest because of a penalty APR — a sky-high rate slapped on the credit card balance.
Some credit cards don’t charge penalty APRs, but many popular ones do. They could hike the interest rate if you’re two months late on payments. And the higher rate could last until you pay on time for six months straight.
The best solution when you incur a penalty APR — also called a default rate — is to bring your credit card account current as soon as possible by paying the minimum amount due . But that might be easier said than done. If you’re paying late, there’s probably a reason. Here's what to expect when you get socked with a penalty APR.
When you apply for a credit card, the issuer must disclose the penalty APR: what the penalty rate is, what triggers it and how long it would last.
That information and other essential card details can be found in a prominent chart at the top of the card’s terms and conditions called a Schumer box .
The penalty APR might be a single percentage rate or a range of rates based on your creditworthiness.
The penalty APR for many cards is 29.99%, at the time of this writing. That could be double what your normal interest rate is, which hurts if your balance is high.
Ready for a new credit card?Nerdwallet+ members can earn $100 in rewards for paying their first bill on time with an eligible credit card.
GET STARTED
If you are 60 days late on a payment, an issuer can impose the penalty APR. The reason? If you’re that late, the issuer views you as risky because you might not pay at all. The issuer must notify you 45 days before the increase takes effect. So it might take a total of 105 days after your payment was due before the penalty APR begins.
The higher interest rate can apply to previous balances and new charges.
That penalty APR can stay in place for six months on existing balances after you bring the account current and continue to make timely payments. So this is no short-term punishment. Even after six months of on-time payments, the issuer might lower the interest rate on existing balances but can decide you’re a higher credit risk and choose to charge higher rates on future purchases.
If your payment is returned for some reason, like a bounced check, it can also be counted as late and eventually trigger a penalty APR. (It might also incur a returned payment fee.)
Also of note: Some credit cards offer new cardholders a 0% interest rate on purchases, balance transfers or both. But if the card also has a penalty APR and you trigger it, you will likely lose that promotional offer.
Federal consumer protections that limit penalty APRs don’t apply to small-business credit cards . That means issuers can be more punitive, such as applying penalty APRs sooner than 60 days after not making payments.
Some credit card issuers charge penalty APRs on all or most of their cards, while others don’t use them at all. Some have a mix, designing only some cards with penalty APRs.
For example, as of this writing, we found lots of penalty APRs on Citi and Bank of America® credit cards, while finding few or none on Discover and Capital One cards. Chase and American Express have a mix; it depends on the card.
So it pays to check the account agreement to see if your card charges one.
A card with a penalty APR isn't necessarily a bad choice. But when comparing credit cards, maybe penalty APR becomes a tie-breaker between similar ones. For example, among flat-rate cash-back cards , maybe it’s the reason you choose the Capital One Quicksilver Cash Rewards Credit Card , which has no penalty APR, over the Citi Double Cash® Card , which has one.
Penalty APR is relevant only if you’re ever 60 days late. It’s not an issue if you always pay on time.
Late fees are a dollar amount, not a percentage. They can kick in right after a payment is late.
The bad news is you can be charged both a late fee and a penalty APR. So missing payments can be very expensive in the short term and for months to come.
A penalty APR doesn’t directly hurt your credit scores. But the same factor that triggered the penalty APR also dings credit scores.
That’s because a history of on-time payments is a big part of credit-scoring formulas . For example, FICO, a prominent brand of credit score, says payment history accounts for 35% of a score. VantageScore doesn’t give percentages, but it calls payment history "extremely influential."
Issuers can report late payments to the credit bureaus if they are at least 30 days late. So if you got hit with a penalty APR, there’s a good chance the credit bureau reports will reflect the late payments.
There’s no magic solution for dealing with a penalty APR. Here are a few ideas:
Stop using the card. Balances you add to the card will carry the high penalty APR.Pay off the credit card balance. The penalty APR doesn’t apply to anything if you also stop using the card.
Bring the account current. Pay at least the minimum due on time. That starts the clock on your six-month stint in the interest-rate penalty box.
Call and plead your case. If you had a spotless payment record with the issuer previously, it couldn’t hurt to call the number on the back of the card, explain your situation and how you plan to make timely payments going forward. You can ask for a reduced APR (though there's no guarantee you'll be granted one).
Call and explain. If your payment wasn't received because of some kind of mistake, contact your card issuer to work it out.
Get a good balance-transfer credit card . Move your balance to a new card that features an interest-free promotional period. Drawbacks: Most cards charge a balance-transfer fee of 3% to 5%. And if your credit has been damaged by late payments, you might not qualify for a new card.
Create a better system. If the problem is forgetfulness or sloppy bill-paying, consider putting your credit card account on autopay . Your account will be paid automatically from a bank account. Just be sure the account that autopay draws on always has enough money in it.
Set up reminders. Many credit card issuers offer the option to send a notification text message or e-mail when your bill is due.
You’re following Gregory Karp
Visit your My NerdWallet Settings page to see all the writers you're following.
Greg Karp is a former NerdWallet writer and an expert in personal finance and credit cards. He previously worked at the Chicago Tribune and wrote two money books. See full bio.
On a similar note.
Download the app
Disclaimer: NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products, shopping products and services are presented without warranty. When evaluating offers, please review the financial institution’s Terms and Conditions. Pre-qualified offers are not binding. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly.
NerdUp by NerdWallet credit card: NerdWallet is not a bank. Bank services provided by Evolve Bank & Trust, member FDIC. The NerdUp by NerdWallet Credit Card is issued by Evolve Bank & Trust pursuant to a license from MasterCard International Inc.
Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.
NerdWallet Compare, Inc. NMLS ID# 1617539
California: California Finance Lender loans arranged pursuant to Department of Financial Protection and Innovation Finance Lenders License #60DBO-74812
Insurance Services offered through NerdWallet Insurance Services, Inc. (CA resident license no.OK92033) Insurance Licenses
NerdWallet™ | 55 Hawthorne St. - 10th Floor, San Francisco, CA 94105
