What Happens If You Don’t Pay Your Credit Card Bill?

Not paying your credit card bill can have serious consequences Your credit score may plummet, you’ll incur late fees and penalty interest rates, and you could even be taken to court. But there are ways to minimize the damage if you miss a payment due to financial hardship Here’s a comprehensive look at what could happen if you don’t pay your credit card bill and how to handle it.

Your Credit Score Will Drop

The biggest impact of not paying your credit card bill is damage to your credit score. Payment history makes up a significant portion of your FICO credit score – 35% to be exact. If you are 30 days late on a payment, it will likely be reported to the credit bureaus and your score could drop by as much as 110 points. The later you are the more your score will fall.

According to NerdWallet, a missed payment may not hit your credit report for 30 days after the due date. So if you pay before that 30-day mark, you can avoid credit damage, though you’ll still owe late fees. Keep in mind even a partial payment that doesn’t meet the minimum due will be marked late.

You’ll Owe Late Fees

When your payment is late, the credit card company will hit you with a late fee. This is typically around $29 for the first violation and up to $40 for additional late payments within 6 billing cycles, according to NerdWallet. Check your cardholder agreement to find out the specific late fee amounts.

The fee will be higher if you are repeatedly late. But under the CARD Act, issuers cannot charge a late fee over $40.

Your Interest Rate Could Skyrocket

In addition to late fees, your credit card’s penalty APR could kick in if you are 60 days late on your payment. Penalty rates can be as high as 29.99%. This means you’ll owe a lot more in interest charges, making it even harder to pay off your balance.

Before the card issuer can raise your rate for late payments, they have to provide you with a 45-day notice under the CARD Act. You would then have 45 days to make your minimum payments on time before the penalty APR applies.

Your Credit Limit Could Be Lowered

If you have a high balance compared to your credit limit, it’s called a high utilization ratio – which brings down your credit score. Issuers look at your utilization when deciding whether to lower your credit limit.

Say your limit is $5,000 and your balance is $4,000. That’s an 80% utilization ratio. If you miss payments with a high ratio like that, the issuer may decide to lower your limit in order to reduce their risk.

A lower credit limit means a higher utilization ratio, further damaging your credit. It also gives you less flexibility with purchases.

Your Account May Be Closed

If your payment is 60 days past due, the credit card company can close your account. First, they will likely try contacting you by phone, email, text and mail. But if you don’t bring the account current after repeated notifications, they can stop allowing transactions.

Closing the account means you lose access to that credit. It also shortens your credit history when the account drops off your credit reports 7-10 years later. Both of these harm your credit score.

You’ll Get Calls From Collectors

Within just a few days of missing a payment, you can expect to get phone calls from collectors representing the credit card company. They’ll request payment of the past due amount. At first these calls may be friendly reminders, but could become more urgent and aggressive as time passes.

Under the Fair Debt Collection Practices Act, collectors cannot call you before 8 am or after 9 pm. And if you request in writing that they stop contacting you, the collector must honor that – with a few exceptions like informing you of a lawsuit.

You Could Be Sued

If you are unable to come to a payment arrangement with the credit card company, they may decide to take legal action and sue you to recover the debt. If they receive a court judgment against you, they can garnish your wages or put liens on your property.

Lawsuits are more common with higher debt amounts, according to NerdWallet. For smaller balances, issuers may write off the debt without suing because it’s not worth the legal costs.

Tips for Handling Missed Payments

• Contact the issuer ASAP and ask if they offer hardship programs or can move your due date to a week when you get paid.

• Consider setting up automatic payments via your bank account to avoid missed payments in the future.

• Pay at least the minimum to lessen credit damage. Paying late is bad but not as bad as non-payment.

• If possible, pay more than the minimum to reduce the balance quicker. High balances hurt your credit utilization rate.

• Review expenses to see where you can cut back and direct those funds towards credit card payments.

• Avoid maxing out cards – high utilization also causes credit score drops.

• Be cautious about closing accounts as this can shorten your credit history.

• Contact an accredited credit counseling agency for advice on managing your debt and improving credit.

• Monitor your credit reports regularly so you spot and dispute any errors.

Long-Term Impacts on Your Finances

The effects of an unpaid credit card bill can linger for years:

• Credit access – A lower credit score makes it harder to get approved for new credit cards and loans. Lenders will see you as high-risk so you may get denied or pay higher interest rates.

• Higher insurance costs – Your credit is a factor in insurance premiums for auto, home, life and sometimes health insurance. A lower score can mean higher rates.

• Difficulty renting – Many landlords check credit before approving rental applications. Some may deny your application entirely if your credit took a hit from missed payments.

• Landing a job – Employers sometimes run a credit check before hiring, especially for jobs involving financial responsibility. Too much negative credit information could cost you a job opportunity.

• Buying a home – Missed payments can disqualify you from getting a mortgage altogether if they caused a large score drop. At best, a lower score will lead to worse mortgage terms.

When Debts Become Charge-Offs

Accounts that go unpaid for 180 days get charged off by the credit card company. Charge-offs mean the creditor has given up on recovering payment and written off the accounts as losses, while still reserving the right to collect.

Charge-offs stay on your credit report for 7 years. They will devastate your credit score and make any borrowing extremely difficult and expensive. Getting new credit cards or loans will be next to impossible. Landlords and insurers may reject you.

Charged-off accounts get turned over to debt collectors who will continue harassing you nonstop. The credit card company can decide to sue you many months or years after charge-off.

A charge-off is the worst-case scenario when you don’t pay your credit card bills. If you’re struggling to make payments, take steps immediately to get back on track. Reach out to the issuer before your account becomes past due.

Options for Assistance With Credit Card Debt

If you are drowning in high-interest credit card debt, consider these options:

• Credit counseling – Reputable agencies provide guidance on paying down debt and rebuilding credit. They can set up debt management plans with reduced interest rates and monthly payments.

• Balance transfer card – These cards let you transfer debt from a high-rate card to one with a 0% intro APR for up to 21 months, reducing interest costs.

• Consolidation loan – Combines multiple debts into one loan with fixed payments and potentially a lower rate. This simplifies managing bills.

• Debt settlement – The creditor or collector agrees to let you pay a lump sum lower than the original amount owed. But this option comes with steep fees and credit damage.

• Bankruptcy – For those unable to repay debts, bankruptcy wipes the slate clean. However, it devastates credit for 10 years and has other serious financial consequences.

When Paying Bills, Prioritize Credit Cards First

Because the effects of missed payments are so dire, it’s wise to pay credit card bills before almost any other expenses, apart from absolute essentials like rent, utilities and food. Not paying other bills like gym memberships or cable bills can annoy you with late fees but won’t tank your credit scores.

Set up autopay or payment reminders for credit card bills. Have a few different cards so a single missed payment won’t hurt as badly – just don’t take on more debt to get new cards. If money is tight one month, pay at least the minimums on all cards to avoid damage.

Check Your Credit Reports

Mistakes happen, so check your credit reports regularly at www.annualcreditreport.com. This government-authorized site lets you obtain free reports from the major bureaus once yearly. Scan the reports to verify your payment history for each account is accurate. If you find incorrect information such as payments marked late when you paid on time, immediately dispute the errors with the credit bureaus. This