What Happens When I Don’t Pay My Credit Card?

Not paying a credit card bill can lead to escalating financial consequences. The impact extends beyond simple fees, affecting one’s financial standing and future borrowing capacity. Repercussions begin almost immediately and intensify over time.

Immediate Financial Consequences

When a credit card payment is missed, immediate financial penalties are incurred. A late fee is applied if payment is not received by the due date, generally 5 p.m. in the time zone stated on the billing statement. These fees can range from approximately $30 for a first offense to around $41 for subsequent late payments within six billing cycles, though a new rule aims to cap typical fees at $8 for larger issuers.

Beyond a late fee, a missed payment can trigger a penalty Annual Percentage Rate (APR). If a payment is 60 days or more overdue, the credit card issuer may impose a significantly higher interest rate on the outstanding balance, including new purchases, cash advances, and balance transfers. This increased rate raises the cost of carrying a balance, making debt reduction harder.

Compounding interest further accelerates debt growth. When interest is charged on an unpaid balance and added to the principal, subsequent interest calculations include the previously accrued interest. This means interest is charged on interest, leading to faster debt accumulation.

Impact on Credit Report and Score

Missing credit card payments directly impacts an individual’s creditworthiness. Credit card companies report missed payments to the three major credit bureaus—Equifax, Experian, and TransUnion—once a payment is 30 days or more past due.

These missed payments appear as negative entries on a credit report and can remain there for up to seven years from the date the account first went past due. The longer the payment remains unpaid, the greater the impact on the credit score. Payment history is the most significant factor in credit scoring models like FICO and VantageScore, accounting for 35% of a FICO Score. A single missed payment can cause a substantial drop in a credit score, potentially by 100 points or more for those with good credit.

A lower credit score affects future borrowing opportunities and the interest rates offered on new credit. This includes mortgages, car loans, and other forms of credit, making them more expensive or difficult to obtain. A reduced credit score can also influence non-lending aspects, such as insurance premiums and rental applications, as these entities often review credit history.

Creditor Collection Procedures

If credit card debt remains unpaid, the creditor initiates collection procedures before resorting to legal action. Initially, the original credit card company attempts to contact the cardholder through automated reminders, phone calls, and letters in the weeks and months following missed payments. The company’s internal collections department works to establish contact and arrange a payment plan or settlement.

If these efforts are unsuccessful, the credit card company will “charge off” the account, typically after 180 days of non-payment. A charge-off signifies the debt is considered uncollectible for accounting purposes and is written off as a loss by the lender. The debt is still legally owed by the cardholder.

Following a charge-off, the original creditor may either sell the debt to a debt buyer or assign it to a third-party collection agency. When debt is sold, the debt buyer owns the debt and has the right to collect it. If assigned, the third-party agency collects on behalf of the original creditor. Debt buyers and collection agencies may employ more aggressive communication tactics to recover the outstanding balance.

Potential Legal Action

When collection efforts fail and debt remains unpaid, original creditors or debt buyers may initiate legal action to secure a judgment. A credit card company typically sues for larger balances, usually after 180 days of delinquency, once other collection methods have been exhausted. While less common for smaller amounts due to litigation costs, a lawsuit can be filed once the debt is severely delinquent.

Upon filing a lawsuit, the cardholder receives a summons, a formal notice of the legal complaint. It is important to respond to this summons within the specified timeframe, which can be as short as 10 days or as long as 30 days, depending on the jurisdiction. Ignoring the summons can result in a default judgment against the cardholder, automatically ruling in favor of the creditor.

If the court rules in favor of the creditor, a judgment is issued, legally confirming the debt. This judgment grants the creditor various methods to enforce collection. Common enforcement mechanisms include wage garnishment, where a portion of the cardholder’s earnings is withheld by their employer and sent directly to the creditor. Federal law limits wage garnishment for consumer debt to 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage, whichever is less. Another method is a bank account levy, which allows funds to be seized directly from the cardholder’s bank accounts. A lien may also be placed on real estate, though this is less common for credit card debt alone.