What Is a Penalty APR, and How Can You Avoid It?

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One of the most common pieces of credit card advice is: always pay your bill on time and in full. Doing so is one of the best ways to improve your credit score, not to mention avoid paying any interest on your balances.

But what happens when you don’t?

In most cases, a missed payment will result in penalty fees and other unpleasant consequences. Even one late payment can have a major impact on your credit score. Not to mention, you might get hit with a penalty APR.

Although a penalty APR is one of the most common consequences of late credit card payments, there are many ways to avoid it. We talked to several experts about penalty APR, including what it is, how it affects your credit, and how you can prevent it from happening. 

What Is a Penalty APR

Before discussing penalty APR, it’s important to understand the basics of credit card APR. 

Every credit card has an APR, or annual percentage rate. It’s the interest rate you agree to pay on the charges you make using the card. Each month, you’re required to make at least the minimum payment toward the balance by the due date, though you can always pay more than the minimum balance. If you don’t pay the bill in full, the credit card issuer then charges interest on any unpaid balances at the APR specified in the cardholder agreement.

Depending on your cardholder agreement, you may be charged different APRs depending on how you use the card. Common types of credit card APRs include purchase APR, balance transfer APR, and cash advance APR. 

“A penalty APR is an increased interest rate that results from violating the terms of your credit card agreement,” says Michael Sullivan, personal financial consultant at Take Charge America, a non-profit that provides credit counseling and debt management services.

You might be charged a penalty APR if you are more than 60 days late on your credit card payment or if you are consistently more than a few days late every month, according to Sullivan. A penalty APR is usually temporary unless the account remains in violation of the terms, he adds.

Pro Tip

Enroll in AutoPay, manage your spending, and notify your insurance company before you fall behind on payments to avoid credit card penalty APR.

The standard penalty APR seems to be 29.99% regardless of the regular rate, but some cards have lower penalty rates or don’t charge a penalty APR at all, says Sullivan. For comparison, typical credit card APRs range from 14% to 24%. Credit card companies are allowed to retroactively apply a penalty APR to existing balances, but they have to give advance notice.

You can find your credit card penalty APR information in the terms and conditions of the cardholder agreement you received when you first opened the card. You can also call your credit card company and ask for the penalty APR details. 

Can You Get a Penalty APR Removed?

The good news is, credit card penalty APRs don’t last forever. You can get a penalty APR removed if you catch up on your payments.

“Under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, the penalty APR on an existing balance can last for a maximum of six months if payments are made on time,” says Erica Seppala, financial analyst at Merchant Maverick, an online resource for small business software and services. 

Paying your credit card bill on time is the only way to remove a penalty APR. “If payments are late, the credit card issuer can continue to charge the penalty APR on the existing balance for an indefinite period of time,” Seppala says.

To remove a penalty APR, you must make six consecutive payments beforere or on the due date. If you pay less than the minimum required amount, it will show up on your account as a missed payment. It will also count against you if your payment gets rejected, such as in the case of a bounced check.

Certain cards stipulate in their cardholder agreement that they won’t charge a penalty APR, or won’t charge it for the first offense. But if your card does charge a penalty APR, you typically can’t get it removed just by asking nicely. Even if you’re a long-time customer or have a great credit score, the only way to remove the penalty APR is to make your payments on-time.  

Will a Penalty APR Affect Your Credit Score?

Although the actual implementation of a penalty APR likely won’t affect your credit score, the actions which caused you to be charged a penalty APR — for example, late payments — will, according to Sullivan. 

“For example, if you are 60 days late in making a credit card payment, this not only may trigger the penalty APR, but can be reported to the credit bureaus,” says Seppala. “This will ultimately show a late payment, which can result in your credit score dropping,” she says.

Although your credit score will improve as you make on-time payments, it can take much longer to fully repair damaged credit. Late payments can stay on your credit report for seven years, according to the credit bureau Experian.

How to Avoid Penalty APRs Moving Forward

Avoiding a penalty APR boils down to one simple rule: pay all your bills on time, and make at least the minimum payment. It’s good to pay your bills in full if possible, since that will help you avoid interest charges, but not paying your bills in full won’t result in a penalty APR as long as you make the minimum payment.

If you have trouble paying your bills on time, here are some tips that can help: 

  • Enroll in autopay: When you sign up for automatic payments, your minimum balance is paid automatically through a linked bank account on the due date. That way, you don’t have to remember when your payments are due, or even make manual payments. 
  • Talk to your credit card company: If you know that you’re not going to be able to pay your credit card bill on time, call your credit card company and explain the situation. It’s possible that they can move the deadline for that month.
  • Make a payment plan: When you fall behind on your credit card payments, consider making a payment plan with your credit card company. You might be able to make smaller payments more frequently, or make an extra few payments throughout the year to pay down the balance faster.
  • Reconsider your spending: If you’re struggling to make your credit card payments, it might be time to look at your spending and double down on your budget. Digging yourself into debt has a number of serious consequences, and it can be difficult to recover from debt if you don’t take the right steps early on. If you need guidance, a non-profit credit counseling agency can help you make a plan to reorganize your finances and manage debt.