Editorial Policy

Cards that Let you Pay Late: A Good Deal?

Erica Sandberg

July 12, 2013

QDear Erica,

Have you seen the commercials for the credit cards that let you pay late? What do you think of them? I don't have a credit card right now, so am reading reviews on the Internet for what could be the best card. I like the idea of not having to worry about late fees, but is there a catch that I'm not aware of? — Stan

AHi Stan,

I have seen the ads! They're quite clever, too. As for my opinion about these cards that don't penalize cardholders if they pay late, I think they're right and helpful for certain people.Ask Erica

Before I get to the details of no-fee-for-late-payment cards, know that I'm glad you're shopping around for an account. Conducting such personal research is the ideal way to find the card that best suits your needs. It's far better than waiting for a preapproved letter to appear in your mailbox. With hundreds of cards on the market, there's no reason to limit yourself in this way.

OK, now for the cards you're curious about. I like the concept, but you're right to be cautious.

Issuers, including Discover and Citi, have introduced credit cards that allow their customers the flexibility to pay after the due date without being assessed a penalty fee. Some give only a one-time break (the Discover “it” card, for example, charges you $35 on all late payments after the first one). Others are more liberal and never charge you for late payments.

However — and here's the “catch” — paying late is not without consequences. Waived late fees don't mean you get to send payments for balances you've run up whenever you feel like it. You'll still be expected to send at least the minimum amount due at some point before a complete payment cycle has lapsed, which is about 30 days. If you miss that deadline, the issuer will eventually report the skip to the three major credit bureaus.

Let's say you get a bill that says you need to pay at least $120 by Aug. 10. That would be the due date. If you have one of these cards that don't charge late fees and pay on the 15th instead, no worries: You won't see a late fee on your next bill. Depending on your issuer, your credit rating may be safe too, as many issuers report you to the bureaus only if you're at least 30 days late. But if you pay after Sept. 10, more than a month would have passed, and you'd enter credit-damage land. Your reports and credit scores will suffer, which could lead to higher interest rates on other loans you apply for. A higher interest rate on a long-term loan (like a mortgage) will end up costing you much more than a late fee would have.

You'll also have to factor in interest charges. Don't let those late fees encourage you to push the snooze button and wait a couple weeks before paying. The longer you go without making a payment, the more those interest charges will add to your balance, making a waived $35 fee less of a cause for celebration.

If you're still interested in this type of card, you have yet another thing to consider — and that's if the issuer is interested in you. All credit card companies review the credit and financial history of potential new customers. If you already have a pattern of paying late (especially recently), you probably won't qualify for these products in the first place. These cards aren't for habitual bill forgetters, but responsible people who might make one little mistake at some point in the future. Read the terms and eligibility restrictions carefully before applying.

Got a question for Erica? Send her an email.