Your monthly credit card bill comes. You get that sinking feeling in the pit of your stomach because you know your bank account doesn’t have enough money to make the minimum payment. What happens over days, months, even years if you don’t pay your credit cards?
Below, we’ll attempt to describe all the possible scenarios that can result from not paying your monthly credit card bill and provide advice for how to handle these situations.
What to Do First If You Can’t Make a Credit Card Payment
Before we go any further, it’s important to explain what you should do as soon as you realize you can’t make a minimum payment:
1. Find the phone number for your credit card company and give them a call.
2. When you get a customer service representative on the line, tell them that unexpected circumstances have made it impossible for you to make your minimum payment on time this month. If this is the first time it has happened, make that clear.
3. Tell them when you will be able to make the payment.
4. Ask if they can change your due date just this one time and if they would be able to waive your late fee.
If the steps above work, then make sure you pay the bill by the new due date. If the steps above don’t work, then ask if they could at least hold off on reporting the late payment to the credit reporting agencies that handle your credit report.
After One Missed Credit Card Payment
Okay, now let’s consider what happens after you have missed one payment (and remember, paying less than your minimum payment is equivalent to a missed payment). When this happens, you'll immediately be charged a late fee of approximately $25-35. Since late fees get added right onto your balance, it will begin accumulating interest just like the rest of your debt!
But in the long run, a late fee is not the most damaging consequence of a missed payment. Let’s consider all the possible consequences:
- You are charged a late fee You get a bad mark on your credit report Your interest rate goes up
Those last two are actually much more serious than the late fee.
If you have an “introductory” or special interest rate, you might lose it after a missed payment. That could cost you hundreds or even thousands of dollars. Your interest rate might go up by 10% (from say, 15% to 25%) and if you still have years left to pay off your balance, that additional interest will add up to a painful amount. Of course, you could try to switch to a card with a lower interest rate, but that would depend on your credit score…
Which brings us to the other big question: will one missed payment (or late payment) affect your credit score ?
The answer is that it depends entirely on the discretion of your credit card company, which has the right to report a late payment to the 3 major credit bureaus (Equifax, Experian, and TransUnion). The credit bureaus maintain your credit report and compile your credit score, which lenders use to determine whether to let you borrow money–and at what interest rate.
When you have missed a payment, your credit card company can play “hardball” and report you immediately, or they can give you a bit of time to fix the problem before reporting it. Fortunately, credit card companies usually do not report a missed payment immediately. More often, they will wait at least 30 days to see if you are able to pay before the next due date rolls around. However, if you already have a history of missing payments (or making late payments), they’ll probably report it immediately.
After Two Missed Credit Card Payments
Now we’re getting into more dangerous territory. After the second missed payment, you will be charged another late fee of $25-35 and the credit card company will be more likely to report your late payment to the credit bureaus. The point at which a late payment is reported to the credit bureaus can vary quite a bit. There’s a grey area between 30-60 days late where some companies will report and some will not. Once you are 90 days late, however, it will almost always be reported.
So if it’s reported to the credit bureaus, how much will the late payment hurt your credit?
Unfortunately, it will have a pretty dramatic effect. Experts say that regardless of your current credit score, a mark of 30-60 days late will usually lower your credit score by 60 to 110 points! That means you’d have to pay higher interest rates on any future credit cards or loans you get–including home mortgages, auto loans, etc. However, if you make the payment before it becomes 90 days late, you will escape the worst of the damage to your credit score. (The negative impact will fade much more quickly–perhaps within a year or two–compared to a payment that is more than 90 days late, which will hurt your credit score for up to 7 years.)
Also, at this point on the timeline (30-60 days late) your account will likely be given to in-house debt collections specialists. That is not the same as being turned over to a collections agency, but it is an intermediary step as the company tries its best to recoup the money it is owed. You can expect to receive calls from the internal collections agents who work for the credit card company.
They will generally be polite but firm, and will warn you of the consequences of non-payment. Sometimes they’ll offer you ways of settling your debt without paying the full amount. If you’re in a position to make a payment at this time, you might be able to negotiate at this point and possibly avoid paying some of the late fees that have piled up.
After 6 Months of Missed Credit Card Payments (180 Days Late)
By the time you are 180 days late, you are usually in a world of hurt. For one thing, you’ve been charged late fees (of about $35) for the last six months. For another thing, your credit report is now definitely showing your multiple missed payments, which means your credit score is certainly sub-prime (less than 660) and possibly even below 600, making it very hard for you to borrow in the near future.
Many credit card companies will “charge off” your debt after about 6-7 months and at that point they will usually sell it to a third-party collections agency. Which means that although your original creditor has given up on collecting the money you owe, a new creditor now owns your debt and has the right to collect from you.
Usually the new creditor is a collections agency, and unfortunately, they may not be as polite in their communication with you. In fact, sometimes their tactics are downright abusive. Fortunately, the law protects you from the worst forms of harassment by debt collectors. so be sure to know your rights. And if you experience abusive behavior by a collections agent, be ready to report it.
Many Years After a Missed Credit Card Payment
By now, you can see the consequences of what happens if you don’t pay your credit cards. But what about many years later? Is there any point at which your failure to pay your bills will fade from your credit report? And what about your legal liability for paying the money back–does that ever go away? The answer to both questions is yes.
However, the timeline for having your debts forgiven by the law and by the credit bureaus is pretty long. In terms of your vulnerability to getting sued by your creditors, the statute of limitations can be anywhere from 3 to 10 years, depending on which state you live in. To see what the law is in your particular state, you can use this handy tool .
You also need to be aware that certain actions you take might extend or even restart the statute of limitations. In some states, making another payment or even acknowledging that you owe the debt can cause the statute of limitations to begin anew. (If you want more details about this, please take a look at this article .)
As for how long an unpaid credit card bill might stay on your credit report, the number to keep in mind is seven years. After seven years, the bad mark will no longer show up on your credit report.
Ben Feldman is a writer and content strategist for ReadyForZero.
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Illustration by Nick Criscuolo.