Juana Velosa (not pictured), made sure to pay off her credit cards before leaving for a work trip. She received a surprise when she learned she owed 3 months worth of late fees and penalties.
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In April 2019, Juana Velosa was excited for her upcoming work assignment in Africa. As part of her job, she would be spending three months on the continent.
As she packed her bags and prepared for the trip, she made sure to have a solid checklist in place to make sure she didn’t miss anything. This included making sure all of her bills would be paid in her absence, and logging into her credit card account and paying off the balance in full.
When she finally returned home in late July, she quickly got back into her normal routine. A few weeks later in early August, she went shopping for clothes and when she tried to check out, her store-brand credit card was declined due to an unpaid balance.
Perplexed, Velosa phoned the bank immediately to get more information. Her first instinct was that she was the victim of fraud. She was told that a purchase she made prior to her trip was not included in the statement balance she paid off (it was included on the following month’s total).
Her initial purchase was for $59.68, but it ballooned all the way to $169.99 due to three late charges and $7.31 in finance charges. In order to avoid being charged more fees, she immediately paid off the full balance including the fees (the bank waived the most recent late fee). Thinking this was now behind her, she moved on with her life.
Missing a credit payment will result in late fees, interest payments and a negative mark on your credit report.
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It wasn’t until recently that the seemingly innocuous unpaid balance from her time in Africa began to haunt her again. She was hoping to refinance the mortgage on her home in order to take advantage of lower interest rates. She eagerly applied and was awaiting the approval when her loan officer called her with bad news: her application had been denied due to the snafu with her credit while she was in Africa.
What started as a harmless shopping trip in April for $59.68 worth of clothing, may now cost her thousands of dollars in interest payments on her mortgage due to not qualifying for the refinancing. Refinancing a mortgage works the same way as refinancing student loans, which means that shaving a few points off of your interest rate can make a huge difference in the total amount paid over the life of the loan(s).
Velosa is frustrated because she claims she was never notified by the bank regarding the late fees or unpaid balance, and only found out when she coincidentally returned to the same store to make another purchase in August. If she wouldn’t have stopped in that day, the total balance could have easily grown to hundreds of dollars, without her realizing it.
Velosa’s story should serve as a cautionary tale for all credit card users, because it’s easy to see how this could happen to anyone. Even a single innocent misstep can have far-reaching financial consequences.
Here are a couple of things you can do in order to prevent something similar from happening to you and ruining your credit.
1. Check Your Credit Report Regularly
You can get your official credit report for free from AnnualCreditReport.com. By law, each of the three major credit reporting bureaus (Equifax, Experian and Transunion) must give you a free credit report every 12 months if you ask for it. I request one from a different credit bureau every three to four months throughout the year.
The most important things you should look for in your report are derogatory marks, accounts you don’t recognize or any inaccuracies. Making sure your credit report is accurate will go a long way to help you detect fraud and catch any missed payments early.
(Read: 8 Things You Can Learn From Those With A Perfect Credit Score)
In addition to getting a free credit report, you can also get free credit scores. Sites and companies like Credit Karma, freecreditscore.com, Credit.com, Mint and Chase Credit Journey will all give you free scores. Some of them are estimates using their own models, but I’ve found them to be very accurate. I’ve used Credit Karma for years and also recently started using Chase Credit Journey. They all do a good job.
You should never need to pay for a credit report or a credit score. You can freeze your credit for free too.
2. Automate Your Payments
One way to avoid missing payments is to take the human element out of it by setting up automatic payments. You will still need to make sure your payment account has enough money in it to cover the full balance so that you don’t overdraft.
Auto-payments will help you avoid late fees and unwanted interest charges, which as we saw in Velosa’s case, can quickly spiral out of control.
Even as a personal finance writer, I used to occasionally forget to pay a utility bill on time, so beginning a few years ago, I began to automate as many payments as possible. From utilities, to credit cards, and even rent. It means I spend less time doing repetitive tasks every month and I never miss a payment. I have a credit score over 800 as a result.
It’s also important to remember that your credit score isn’t the most important thing when it comes to your personal finances.
As for Velosa, it remains to be seen whether her credit card company will heed her request to have the negative remarks removed from her report. Her mortgage refinancing hangs in the balance. Her plan for the money she was hoping to save in mortgage interest? Increase her retirement savings by maxing out her IRA.