Avoid late payments -- factor in processing time

By Helen Fowler

In an age of instant money transfers, you might think there's no need to worry about whether you've allowed enough time to make a payment on your credit card by the due date. However, despite advances in electronic banking, some credit card providers take longer than others to process payments. It might sound like a technicality, but if you don't allow enough time for your payment to process, you could end up in all sorts of difficulties. late-fees

"You could be facing late payment charges, fees, interest payments -- it just all compounds," says Brian Munjanja, accountant at Kettering-based financial advisory firm AFP Services. "Once you start with a late payment, you are going to be charged X, Y and Z. Then the interest piles up, so you're paying penalties for handling fees."

Processing time varies between lenders
It's important to understand that not all credit card providers take the same length of time to credit payments to your account.

According to two American Express customer service representatives, it generally takes between two and three working days for money to be credited to a customer's account balance. In contrast, payments received to a first direct bank account generally occur on the same day, typically within as soon as two hours.

Your method of payment affects how long it takes the card company to receive your funds, explained Amanda Brown, senior communications manager at Capital One, in an email. As a rule (for Capital One), she said, it will be the same day -- it might take longer if you pay using a giro at a competitor bank or through an ATM.

"Many of our payments are received via faster [methods] and include those made via online banking and telephone banking from a current account," says Naomi Bustin, PR manager at Capital One. "These are processed the same day, if made before 5:30 p.m."

As soon as Capital One receives your payment, your credit card funds are available to you again.

Barclaycard's procedure is similar.

"Here at Barclaycard, when a customer makes a payment, it applies to their account from the day we receive it and the funds are made available for them to spend within two hours of our receiving it," Tom Foxton, Barclaycard's media relations manager, wrote in an email.

But no matter how long your credit provider takes to process your payment, you might be pleased to learn it cannot profit from the funds during that time.

"Credit card issuers are not allowed under Payment Service Regulations to make money on the float," said Giles Mason, senior press officer at The UK Cards Association.

Take steps to avoid late payments
Late payments factor into your credit history, so it's important to ensure you're paying your bills on time. Many lenders allow a grace period of a few days before they report a late payment, but you shouldn't rely on that extra time, especially if you aren't certain of your lender's rules.

If you can't keep track of all the processing times for your various lenders, setting up direct debits to make payments is a wise idea. "Then you avoid the possibility of missing the deadline and collecting negative information on your report," says James Jones, head of consumer affairs at Experian.

Just make sure to determine how long you need to allow for payment processing, by either checking your payment history or asking your provider. Then set your direct debit to pay the bill at least that many days before the bill is due.

See related: How long credit slip-ups stay on your credit report, Fact or myth? Test your credit rating knowledge

Published: 19 May 2014