What Happens If You Stop Paying Your Credit Cards?
Learn the full scope of financial and credit repercussions that progressively develop when credit card payments are no longer made.
Learn the full scope of financial and credit repercussions that progressively develop when credit card payments are no longer made.
When credit card payments cease, it initiates a sequence of events with significant financial repercussions. Defaulting on these obligations negatively affects a person’s financial standing and future borrowing capacity. This article outlines the typical stages and consequences that unfold when credit card payments are no longer made.
Missing even a single credit card payment triggers immediate consequences from the original creditor. The most common initial penalty is a late fee, which can range from around $32 for a first offense, potentially increasing to $41 for subsequent late payments. Beyond these fees, a missed payment can also lead to an increase in the interest rate applied to the account, known as a penalty APR. This higher rate, often around 29.99%, can be applied to new purchases and, after 60 days of delinquency, even to existing balances.
While a payment less than 30 days late typically won’t appear on a credit report, a 30-day late payment is reported to credit bureaus and can cause an immediate drop in credit scores. The credit card issuer will also begin communication attempts, such as sending reminder notices and making phone calls, to prompt payment. At this early stage, the account remains with the original creditor, who focuses on encouraging the cardholder to bring the account current.
As missed payments accumulate, the account progresses through various stages of delinquency. With each passing month of non-payment, the negative impact on the individual’s credit score intensifies, making it harder to obtain new credit. During this period, the original creditor’s internal collection efforts become more persistent, including more frequent calls and written communications.
When an account reaches approximately 180 days of non-payment, the original creditor typically “charges off” the debt. A charge-off means the creditor has removed the debt from its active accounts and written it off as uncollectible for accounting purposes. However, a charge-off does not mean the debt is forgiven or erased; the cardholder still legally owes the money. The creditor may then either continue its own collection attempts, sell the debt to a third-party collection agency, or assign it to a collector.
Following a charge-off, the debt often transitions from the original creditor to a third-party debt collection agency. These agencies are hired to collect on behalf of the original creditor. Debt collectors employ various methods to recover the outstanding balance, including frequent phone calls, sending letters, and occasionally using emails. Their communication can be persistent, aiming to secure payment or negotiate a settlement.
Consumers have certain rights concerning how debt collectors can interact with them. Individuals can dispute the validity of a debt or send a written request to cease communication, which can limit or stop collection calls. While collectors may offer to settle the debt for a reduced amount, this is a separate negotiation process.
If collection efforts are unsuccessful, the creditor or debt collector may pursue legal action to recover the debt. This involves filing a lawsuit in civil court to obtain a judgment, which is a court order formally establishing the debt and the individual’s legal obligation to pay it. A judgment provides the creditor with tools to enforce collection.
Once a judgment is obtained, creditors can employ various enforcement mechanisms. These may include wage garnishment, where a portion of the individual’s earnings is legally withheld by their employer and sent directly to the creditor. Creditors may also pursue bank levies, allowing them to freeze and seize funds from bank accounts, or place property liens, which can attach to real estate. These enforcement actions are carried out through court orders, not directly by debt collectors.
These events are recorded on an individual’s credit report, significantly affecting their creditworthiness. Missed payments are noted, detailing whether they were 30, 60, or 90-plus days late. A charged-off account is also indicated, signaling to future lenders that the debt was written off as uncollectible by the original creditor.
Collection accounts and any public records, such as judgments, are reflected on the credit report. While major credit bureaus may no longer directly include civil judgments on consumer reports, the underlying delinquent account that led to the judgment will still be present. Most negative items, including late payments and charge-offs, can remain on a credit report for up to seven years from the date of the first delinquency. This prolonged presence of adverse information makes it challenging to secure new loans, obtain favorable interest rates, or even rent property, as lenders and other entities use these reports to assess financial risk.