Using a business credit card can make it easier to run your business and get rewards and perks along the way. But if you miss a payment by as little as one day, your card could become a thorn in your side overnight.
So, if your cash flow is intermittent and you’re considering prioritizing other payments first, think again.
4 negative consequences of paying your business credit card late
Four things can happen if you make a late payment on your business credit card. While you can avoid some of them, others could cost you now and in the long run.
1. It could harm your personal credit
Most business credit card issuers don’t report your account activity to the consumer credit bureaus. But if you’re delinquent on your payments — typically 30 or 60 days late — some will report that information on your personal credit report.
Your payment history is the most important factor in your FICO credit score. Having a late payment could drop your score significantly, even if your credit history is otherwise spotless. What’s more, that late payment will stay on your credit reports for seven years.
2. You could get hit with a penalty APR
Many business credit cards have a penalty APR, which can be 29.99% or more. For consumer credit cards, the Credit CARD Act of 2009 requires card issuers to wait until you’re 60 days late, plus they need to give you written notice 45 days before the rate increase.
But the law doesn’t apply to business credit cards, so you may trigger a penalty APR with just one missed payment. And depending on the card you have, it could remain on your account indefinitely.
The average credit card interest rate is 14%, so seeing your rate more than double could cost you dearly.
3. You may lose your grace period
Most business credit cards offer a grace period of 20 to 25 days between your statement date and your due date. If you pay your balance in full during this time, you won’t have to pay any interest on the debt you incurred.
But if you miss a payment or carry a balance, you could lose that benefit for that month plus the next one. This means that interest will start accruing on your purchases immediately. Combined with a penalty APR, losing your grace period could be devastating, especially if you have a large balance.
4. You’ll be charged a late payment fee
Even if you’re just a few hours late on your payment, your card issuer will assess a late payment fee on your account.
The actual fee will depend on the card issuer and your late balance, but the fee can be as high as $39 with some major banks.
What to do if you’ve missed a payment
In an ideal world, you wouldn’t have to deal with any of these consequences. By setting up automatic payments and prioritizing your credit card payments, you can ensure that you never miss one.
But if you’ve made a mistake, or your business is struggling and you had no choice, there are a few things you can do right now to minimize the damage.
Don’t miss any more payments
While some of the consequences above are triggered immediately, others don’t unless you’re late for 30 days or more. So, it’s essential that you get caught up as soon as possible.
If you do get hit with a penalty APR, some card issuers will remove it if you make a set number of consecutive, on-time payments. If you plan to keep the card, getting rid of the penalty APR is paramount.
Transfer your balance to another card
If your late payment prompted a penalty APR and eliminated your grace period, you could save money by transferring the card’s balance to another card in your wallet. The card issuer would view this as a payment, and you could avoid dealing with higher interest costs.
As you pay down the balance on the card, consider using it going forward for new purchases as well, especially if you know the penalty APR on the original card will never go away.
Apply for a new credit card
If you don’t have another credit card you can transfer your balance to, consider opening a new one. Some business credit cards even offer an introductory 0% APR promotion on balance transfers, giving you time to pay down your balance interest-free.
Since business credit cards require a personal credit check, this option can be tough if your credit history isn’t in great shape. But if you have good or excellent credit, you’ll have a good chance of getting approved. Now would be a good time to check your business credit report. Knowing what your business credit score is, will allow you to know what type of business credit card you can get.
The bottom line
Missing a payment on your business credit card could have some serious ramifications for your business. But fortunately, there are some ways to avoid the mess if you make a mistake or have no other choice.
Whether or not you think you’ll ever miss a credit card payment, check with your card issuer to see what its terms are. Specifically, ask about when the penalty APR kicks in and how long it stays on the account. Also, ask about what would happen to your grace period and when they would choose to report a late payment on your personal credit report.
Having this information before you miss a payment could help you better understand what your next steps should be.
This article was originally written on October 5, 2018 and updated on January 20, 2021.