What Happens When You Don’t Pay Your Credit Card?

When you use a credit card, you borrow money from a financial institution, agreeing to repay it, usually with interest. It functions as a revolving line of credit, allowing you to borrow up to a set limit, repay, and borrow again. Failing to make timely repayments can initiate significant financial repercussions.

Immediate Financial Consequences

Missing a credit card payment triggers immediate financial penalties, starting with late fees. These fees are applied when payment is not received by the due date, typically ranging from $30 to over $40 for repeat offenses. This fee is added to your outstanding balance, increasing the total owed.

Beyond late fees, a missed payment can lead to a penalty annual percentage rate (APR). This higher interest rate applies to existing balances and new purchases, significantly increasing borrowing costs. For example, a 17.9% APR might jump to 27.9% or higher. This elevated rate often takes effect if a payment is 60 days or more overdue.

As interest accrues, it compounds daily on the original principal, unpaid interest, and late fees. This means interest is calculated on your average daily balance and added to the principal, leading to rapid debt growth. This creates a snowball effect, making debt harder to reduce. The credit card issuer may also reduce your available credit limit or suspend your card entirely.

Credit Score and Reporting Impacts

Failing to pay your credit card severely impacts your creditworthiness, as payment activity is reported to major credit bureaus like Experian, Equifax, and TransUnion. Credit card companies report payments as late once 30 days past due. This negative mark can remain on your credit report for up to seven years from the original delinquency date.

Payment history is the most influential factor in credit scoring, accounting for approximately 35% of your FICO Score and 41% of your VantageScore. A single missed payment can significantly drop your credit score, worsening the longer it remains outstanding. For example, a 30-day late payment can reduce a high FICO Score by 90 to 110 points.

A damaged credit score has broad future financial implications. It can make obtaining new loans (like mortgages or auto loans) or credit cards challenging, often resulting in higher interest rates or lower limits. A poor credit history also affects rental applications, insurance premiums, and employment opportunities. Landlords may require higher security deposits, and some utility companies might demand an upfront deposit.

Debt Collection Activities

If credit card debt remains unpaid, creditors initiate collection efforts. Initially, the original issuer attempts to recover the debt through internal efforts, including automated calls, letters, emails, and direct phone calls. These attempts aim to prompt payment before the account escalates.

If internal efforts fail and the account remains severely delinquent (typically after 180 days), the creditor may “charge-off” the debt. A charge-off is an accounting declaration that the debt is unlikely to be collected and is written off as a loss. However, a charge-off does not absolve the debtor of the legal obligation to repay the debt.

After a charge-off, the original creditor often sells the debt to a third-party collection agency for a fraction of its value. This new entity owns the debt and will pursue collection. Debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), a federal law preventing abusive, deceptive, and unfair debt collection practices. This act prohibits harassment, false statements, or contacting consumers at inconvenient times (e.g., before 8:00 a.m. or after 9:00 p.m.). Collection efforts can be persistent and continue for years, though limits exist on how long they can legally sue.

Legal Actions and Judgments

When collection efforts fail, the creditor or debt collector may resort to legal action to recover the unpaid debt. This begins with a lawsuit against the debtor. The debtor receives a summons and complaint, legal documents notifying them of the lawsuit and detailing the claims.

Upon receiving these documents, the debtor can respond to the court. A response can lead to a court appearance, negotiations, or a trial. If the debtor fails to respond within the specified timeframe, the court may issue a default judgment. This judgment is a legally binding court order confirming the debt is owed and specifying the exact amount due.

Once a court judgment is obtained, the creditor gains tools for post-judgment enforcement. Common methods include wage garnishment, where a portion of the debtor’s wages is withheld by their employer and sent to the creditor. Federal law limits wage garnishment for consumer debt to 25% of disposable earnings or the amount exceeding 30 times the federal minimum wage, whichever is less.

Creditors may also pursue bank account levies, seizing funds directly from the debtor’s accounts. Property liens are another enforcement method, establishing a legal claim against the debtor’s real estate or other assets, potentially forcing a sale. These legal actions represent the most severe consequences of unpaid credit card debt, directly impacting income and assets.