MONEYWISE:

One Late Payment Never Cost So Much

Creditors monitoring credit reports find ways to raise interest rates.
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.

Creditors are now monitoring consumers' credit reports looking for late payments and problems on your other accounts, according to Steve Rhode, president 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," he said in a prepared statement to the press, "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.

Just one late payment means a lot more than just a $39 late fee or amark on your credit report, according to Rhode. "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."

Creditors to monitor their customers credit reports. Technological gains made over the past few years have made it easier and inexpensive for creditors to monitor customers' credit reports."Creditors can automatically scan your credit report every month or even every day if they want," said Rhode. "They know the status of your payments to your other creditors almost the instant you slip up."

For more information about Myvesta, a Rockville, Md.-based nonprofit, visit Myvesta.org online or call 301-762-5270.

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This story was published on November 14, 2003.