What Happens If You Don’t Pay a Credit Card?

Missing credit card payments can lead to a series of financial consequences, impacting an individual’s financial standing and future borrowing capacity. These consequences unfold in various stages, from initial fees to more severe actions like legal proceedings.

Initial Stages of Non-Payment

Missing a credit card payment initiates immediate financial repercussions. Most credit cards offer a grace period, typically 21 to 25 days, during which interest is not charged on new purchases if the previous balance was paid in full. If payment is not made by the due date, this grace period is lost, leading to interest charges on the outstanding balance.

Once a payment is considered late, a late fee is assessed. These fees can be capped at $8 for larger card companies due to recent regulatory changes. This fee adds to the outstanding balance, increasing the total amount owed.

Beyond fees, a credit card issuer may impose a penalty Annual Percentage Rate (APR) on the account. This increased interest rate applies to the existing balance and new purchases, making the debt more expensive. This typically occurs after 60 days of delinquency, though some agreements allow for it sooner.

During these initial stages, the credit card issuer will contact the cardholder through phone calls, emails, and letters to remind them of the overdue payment. While a single missed payment might not immediately appear on a credit report if corrected swiftly, the clock starts ticking for more significant credit impacts.

Escalation and Credit Reporting

As non-payment continues, consequences escalate, primarily affecting an individual’s credit report and score. Credit card companies report missed payments to the three major credit bureaus—Equifax, Experian, and TransUnion—once an account becomes 30 days past due. This initial reporting marks the beginning of a negative payment history.

Subsequent reports occur at 60, 90, and 120 days past due. Each successive report of delinquency further damages the credit score, with the impact becoming more severe the longer the payment is outstanding. A single 30-day late payment can cause a significant drop in a credit score, especially for individuals with a previously strong credit history.

Prolonged non-payment often leads to the credit card issuer suspending charging privileges, preventing new purchases. If delinquency persists, the issuer may close the account entirely. This action removes access to revolving credit and can negatively affect credit utilization, a factor in credit scoring.

A significant consequence of extended non-payment is a “charge-off,” which typically occurs after an account has been delinquent for about six months. A charge-off signifies that the creditor has written off the debt as unlikely to be collected. However, a charge-off does not mean the debt is forgiven; the individual still legally owes the money. This action has a severe and long-lasting negative impact on a credit report, remaining visible for up to seven years from the date of the original delinquency.

Debt Collection and Legal Action

Once a credit card debt is charged off or significantly delinquent, the original creditor may sell the debt to a third-party debt buyer or assign it to a collection agency. These entities then attempt to recover the outstanding balance, leading to new and more persistent communication from debt collectors.

Consumers can expect frequent contact from debt collectors, including persistent phone calls and collection letters. While regulations exist to govern how debt collectors interact with consumers, their primary objective remains debt recovery.

If collection efforts prove unsuccessful, the creditor may pursue legal action by filing a lawsuit to obtain a judgment. A court judgment is a legally binding order confirming the debt is owed and empowering the creditor to use various mechanisms to collect it. Failing to respond to such a lawsuit can result in a default judgment, automatically granting the creditor the right to pursue collection.

With a court judgment, creditors can pursue enforcement actions. Common methods include wage garnishment, where a portion of earnings is withheld and sent to the creditor. Federal law limits wage garnishment for credit card debt to 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage, whichever is less. Additionally, bank account levies allow creditors to seize funds directly from accounts, and property liens can be placed on real estate, making it difficult to sell or refinance without settling the debt. Certain federal benefits, like Social Security, are generally protected from garnishment.

There are time limits, known as statutes of limitations, within which creditors can file a lawsuit to collect a debt. These timeframes vary significantly by state, typically ranging from three to ten years. However, the expiration of this statute does not erase the debt or remove its negative impact from credit reports. The debt remains owed, but the ability to pursue it through the court system is limited.