Credit Card Late Fees: What They Are and How You Can Avoid Them

Credit cards are handy tools. They let you buy a new video game, fill up your gas tank, or order groceries today and pay for them later. But with this convenience comes a big responsibility: paying your bill on time. If you miss this important balance due date, you may be charged a late fee.

This fee may seem small at first, but it can quickly escalate into a larger financial issue if left unaddressed. This guide will break down everything you need to know about credit card late fees. We’ll explain what they are, why they matter, and, most importantly, how you can avoid them completely.

What Exactly Is a Credit Card Late Fee?

Think of a credit card late fee as a penalty. It is a charge added to your credit card bill because you didn’t pay at least the minimum amount by the due date. Even being one day late can prompt this late fee.

In Canada, many credit card issuers charge a late fee of around $25 for a missed payment. Some issuers may increase this fee to $30 or more if you miss another payment within a short period. The exact amount depends on your card’s terms and the bank’s policies. The Financial Consumer Agency of Canada (FCAC) ensures banks follow federal rules, explain their fees clearly, and treat customers fairly. Credit card late fees are meant to encourage on-time payments, but for many people, they can still make managing a monthly budget more difficult.

How Do Late Fees Actually Work?

To understand late fees, you need to know three key terms:

1. Due Date: This is your payment deadline. It’s usually the same day every month. You must pay by this date to avoid a late fee.
2. Minimum Payment: This is the smallest amount of money you are required to pay each month. It’s often a small percentage of your total balance.
3. Grace Period: This is the interest-free time between the end of your monthly billing cycle and your payment due date. Paying your full balance during this period means you pay no interest.

When you miss your due date, the credit card company instantly adds the late fee to the amount you owe. If you are late multiple times, your card issuer may raise your interest rate or remove your grace period. This can make your credit card much more expensive to use, depending on your bank’s policies. Read more on how credit card fees work on the Financial Consumer Agency of Canada (FCAC) website.

Why You Should Care About Late Fees

A $25 fee might not sound like the end of the world, but it can cause a chain reaction of problems:

• Extra Costs: The fee itself increases your debt. Multiple fees in a year can add up to hundreds of dollars.
• Higher Interest: Since the fee is added to your balance, you’ll end up paying interest on the late fee amount, too.
• Credit Score Damage: This is a big one. If your payment is more than 30 days late, the company can report it to the credit bureaus. This can seriously hurt your credit score, making it harder to qualify for future loans, such as a car loan or even an apartment later on.
• Penalty APR: Your card’s interest rate could skyrocket to a much higher "penalty APR" if you pay late too often.

Learning how to build good credit starts with avoiding simple mistakes like late payments. You can read more in our blog on ways to improve your credit score.

Top Tricks to Avoid Late Fees

The good news is that avoiding these fees is easier than you think. Here are the best strategies:

1. Set Up Automatic Payments: This is the ultimate defence. You can set automatic payment of the minimum amount, a fixed amount, or your full balance each month. Setting it for just the minimum payment guarantees you’ll never be late.
2. Use Alerts and Reminders: Almost every bank lets you set up free alerts. You can get a text, email, or app notification a few days before your bill is due.
3. Change Your Due Date: Does your bill come right before payday? No problem! You can call your card issuer and ask them to adjust your due date to a more convenient time of the month that suits you.
4. Pay Early: Don’t wait until the last minute. Payments can take a few days to process. Paying a week early removes all the stress.
5. Ask for a Waiver: Made a mistake? It happens! If you have a history of on-time payments, call your bank, be polite, and ask them to waive the fee as a one-time courtesy. They often say yes!

What If You Keep Paying Late?

One late fee is a mistake. Repeated late payments become a serious problem. Essentially, the consequences for frequent late payments get much worse:

• Your interest rate could become very high.
• You could lose your grace period, so you’d pay interest on new purchases immediately.
• Your credit score could drop significantly.
• The bank could lower your credit limit or even close your account entirely.

Fixing these issues can take a long time, so it’s better to avoid them from the start. Knowing how your minimum payment works is a simple way to stay in control and keep your credit on track.

Late Fees and Different Card Types

Each type of credit card behaves a little differently:

1. Cashback Cards: Late fees reduce your rewards.
2. Travel Cards: Some travel cards may remove or limit your rewards after repeated late payments.
3. Student Credit Cards: These have lower fees, but late payments still affect credit.
4. Secured Credit Cards: Late payments can slow your progress toward getting an unsecured card.
5. Store Cards: Store cards often have higher penalty APRs.

Read More on FinlyWealth blog: Best Student Credit Cards in Canada, Best Travel Credit Cards in Canada, Best Secured Credit Cards in Canada and Best Credit Card for Stores in Canada

Late Fees vs. Interest Charges

Late fees and interest charges are not the same.

You can have interest without late fees, and late fees without interest.

When to Call Your Bank for Help

You should call your credit card company if:

• You lost your job
• You are sick
• You can’t pay your bill on time
• You missed a payment and feel worried
• You need a payment plan
  

Banks may be able to help you by providing:

• A hardship program
• Lower interest rates
• Extra time to pay
• A temporary fee waiver
  
  

The Financial Consumer Agency of Canada (FCAC) encourages Canadians to reach out to their credit card company early if they’re struggling to make payments. Talking to your bank can help you understand your options, such as payment plans or temporary support, and may prevent extra fees from building up. Staying in touch shows you’re trying to manage the situation, which can make a big difference in avoiding further financial stress.

Final Thoughts

Credit card late fees are common, but they are also 100% preventable. By using simple tools like automatic payments and calendar reminders, you can keep your money in your pocket and your credit score healthy.

Remember, a credit card is a useful tool when you manage it well. Stay organized, pay on time, and you’ll never have to worry about another late fee again.