Make sure delayed charges don't damage your credit rating
At a recent meeting with my mortgage adviser, she described me as "squeaky clean" on the credit front. And she was right – i've never missed a payment and have never gone over my credit limit.
So I was quite surprised to come home a couple of weeks ago to find a letter from Nationwide, which I hold a credit card with, informing me that I'd not paid my last bill and demanding I settle up immediately.
I rarely use this card, so I called the bank to find out what was going on. It turned out I'd been charged £5.13 by AirAsia on 9 December, and because I'd failed to pay the bill in January, I'd been charged £12 as a late payment charge.
I don't get bills in the post because I've signed up for paperless billing, and I must confess to never checking accounts online unless I've been using my card.
Last January, my husband and I took six months off and went travelling around South-East Asia. During that time, we flew frequently with AirAsia – a budget airline - and I paid for the odd meal and in-flight service with my Visa card.
However, the last time I'd been on one of its planes was in May last year. I explained this to the bank, pointing out I couldn't possibly have incurred any charges in December.
It said perhaps AirAsia had not put a charge through in May and was catching up now. When I asked if it was allowed to do this, I was stunned to find the answer was yes.
According to UK Payments, the service company representing the UK payments industry, there is no set limit when it comes to the maximum time a merchant has to take payment from a credit card.
"When you buy something with your card you are basically saying you are going to honour the transaction," says Michelle Whiteman, a UK Payments spokesperson.
"The timeframe can depend on the different card products and brands. There may be something in the card scheme regulations but there isn't really a specific timeframe, although of course you’d think it would be in a retailer's interests to do it quite quickly."
Of course, if I'd purchased something worth £500, I'd have noticed if it never appeared on my bill, but £5? Not a chance.
The incident really worried me as I was about to apply for a mortgage, and the last thing I needed was a missed payment on my credit file.
Fortunately, Nationwide agreed to refund the late payment charge and interest and take off the missed payment, so long as I paid the outstanding £5.13.
I did attempt to contact AirAsia to try and query the delay. However, after spending about half an hour on hold on an 0845 number, the only advice its UK office could give me was to send a copy of my credit card bill, with information about my card start and expiry date and security code, to a customer service email address in Malaysia.
Given that Malaysia has a dubious reputation when it comes to card fraud, I decided this was not a wise move, particularly given the amount in question.
The banks say they largely rely on guidelines set down by Visa and MasterCard, though these aren't exactly set in stone either.
Visa says it encourages issuers to make sure transactions are processed within 30 days, but that in certain circumstances – such as overseas transactions and those that take a customer over their credit limit – this recommended timeframe can be extended up to 180 days.
MasterCard says electronic transactions should be processed within seven days, and old-style swiped transactions within 30 days.
But while the scheme providers may set these guidelines, issuers and merchants can use their own discretion, so charges can spring up at any time and you're likely to run into problems if you fail to pay them.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.