Pay bills on time to avoid long-lasting pain

It’s the biggest gift-buying season of the year, and you may feel jolly as you hand over your credit card.

But when the bill comes due in January, you’d better be ready: The credit card companies want your payment on time. The first pointed reminder: Late-payment fees can be as high as $39.

But that may be just the beginning of the pain: Your card’s annual percentage rate may soar to 30% or more, even if you are late just one time.

And your card issuer may report the late payment to the credit bureaus -- which will alert issuers of other cards you may have, possibly prompting them to raise their rates even if you’ve made payments to them on time.

If your rate jumped to 30% from 12% because of a late payment, you would pay $45 a month more in finance charges on a balance of $3,000, or $540 over the course of a year.

Some credit card issuers will reset your rate to its original level if you reestablish a track record of on-time payments over a six- to 12-month period. Some make it tougher, requiring that you sign up for automatic plans that debit payments from your checking account.

You could move on to another card, but blemishes on your credit report that caused problems in the first place may make it harder to get a low rate. Some experts predict that credit card issuers are going to get pickier as they tighten standards.

“The late payment fee is really small potatoes,” said Curtis Arnold, founder of U.S. Citizens for Fair Credit Card Terms Inc., a consumer advocacy group in North Little Rock, Ark. “No one likes shelling out $39, but there are much bigger repercussions.” Arnold predicts more holiday shoppers will turn to plastic because other financing options, such as home equity lines of credit, have become more scarce as banks and mortgage companies tighten lending standards.

The credit card industry defends the practice of raising rates. It says late payments are a sign that a consumer is becoming a bigger risk. As with any lending, riskier borrowers are charged higher rates.

“It’s an indication that they [borrowers] may not be able to pay you back,” said Ken Clayton of the American Bankers Assn.