What Will Happen If You Don’t Pay Your Credit Card?
Understand the escalating financial and credit implications that unfold when credit card payments go unaddressed.
Credit cards offer convenience and flexibility, providing a revolving line of credit that can be used for everyday purchases or emergencies. However, this financial tool comes with significant responsibilities. Failing to meet payment obligations can lead to a cascade of negative consequences, impacting not only immediate finances but also long-term financial health. Understanding these potential outcomes is important for anyone managing credit card accounts.
Initial Financial Penalties
Missing a credit card payment, even by a short period, immediately triggers financial penalties. Credit card issuers typically assess a late fee as soon as a payment is not received by the due date. Recently, the Consumer Financial Protection Bureau (CFPB) finalized a rule to reduce excessive late fees, capping the typical fee at $8 for large card issuers.
Beyond late fees, a missed payment can also lead to a penalty annual percentage rate (APR). This higher interest rate is applied to your outstanding balance, making your debt more expensive over time. While some credit cards may not have a penalty APR, it is commonly triggered when a payment is 30 to 60 days late. Federal law mandates that card issuers must provide 45 days’ notice before applying a penalty APR.
Creditors generally report a payment as late to credit bureaus once it is at least 30 days past due. If you can make the payment before this 30-day mark, it may prevent the late payment from appearing on your credit report.
Escalating Collection Attempts
As credit card payments continue to be missed, the issuer’s collection attempts become more frequent and urgent. You can expect a progression of communication, including phone calls, emails, and letters, all aimed at recovering the overdue amount. This outreach typically increases in intensity as the delinquency period lengthens.
An account becomes “delinquent” once a payment is missed, and this status is typically reported to credit bureaus at various thresholds, such as 30, 60, 90, and 120 days past due. Each subsequent reporting of delinquency can further harm your credit standing.
If the debt remains unpaid, usually after 120 to 180 days of non-payment, the account is often “charged off.” A charge-off means the credit card company has written off the debt as a loss for accounting purposes, but it does not absolve you of the responsibility to pay.
After an account is charged off, the original creditor may either continue internal collection efforts or, more commonly, sell the debt to a third-party debt collection agency. These collection agencies then pursue payment.
Credit Report and Score Implications
The impact of missed credit card payments on your credit report and score is substantial and long-lasting. Once a payment is 30 days late, it is typically reported to the major credit bureaus, leading to a noticeable drop in your credit score. This negative impact can worsen significantly with each additional 30-day increment of delinquency, such as 60, 90, and 120 days late. A 30-day late payment can reduce a good credit score by approximately 100 points, with greater drops for longer delinquencies.
A charge-off, which typically occurs after 120 to 180 days of non-payment, severely damages your credit profile. When a debt is sold to a third-party collection agency, a new “collection account” entry appears on your credit report.
Negative marks such as late payments, charge-offs, and collection accounts can remain on your credit report for up to seven years from the date of the first missed payment that led to the delinquency. Their presence can significantly affect future financial opportunities. These negative entries can lead to difficulty obtaining new loans, higher interest rates on credit, and even hinder applications for housing or certain employment opportunities.
Legal Action and Debt Enforcement
When other collection attempts fail, a creditor or debt collector may pursue legal action to recover the outstanding debt. This often occurs after an account has been delinquent for an extended period, typically 180 days or more, and has been charged off. While credit card companies can technically sue for any amount, lawsuits are generally pursued for larger balances where the potential recovery justifies the legal costs, often for debts exceeding $1,000.
If a lawsuit is filed, you will receive a court summons, which is a formal notice requiring a response. Ignoring this summons can lead to a default judgment against you, meaning the court rules in favor of the creditor without your defense being heard. A judgment legally confirms the debt owed and grants the creditor additional powers to enforce collection.
Common methods of judgment enforcement include wage garnishment and bank account levies. Wage garnishment allows a portion of your wages to be withheld directly from your paycheck to satisfy the debt. Federal law limits the amount that can be garnished for most debts to the lesser of 25% of your disposable earnings or the amount by which your disposable earnings exceed 30 times the federal minimum wage. Bank account levies involve freezing your bank account and seizing funds to satisfy the judgment. In some instances, a property lien may also be placed on real estate you own, preventing its sale or refinancing until the debt is paid.