Many Americans rely on credit cards to meet their daily needs. Latest reports show that 11.2% of the population has a credit card payment due.
It is easy to overlook or forget a payment. However, the consequences of missing even one installment can quickly spiral out of control. In some cases, missed payments can lead to legal action by creditors.
When this happens, it is important to understand your rights and options. Credit card debt defense attorneys can provide valuable support in such situations.
Keep reading to learn about the impact of missed credit card payments.
Late Fees
One of the first penalties you will face for missing a payment is late fees. Even though the Consumer Financial Protection Bureau (CFPB) recently lowered credit card fees, these charges can quickly accumulate. Some credit card companies can even raise the fee after multiple missed consecutive payments, further worsening your debt.
Increased Interest Rates
Apart from late payment fees, you risk an increased APR. Annual Percentage Rate (APR) stands for the cost of borrowing when using a credit card. The penalty APR can be triggered by missing just one payment, and it could remain effective for a couple of months or permanently.
However, penalty APR can sometimes be reverted by meeting certain requirements, such as making multiple outstanding payments at once.
Losing Introductory Offers
When you sign up for a credit card, companies often offer an introductory offer like 0% APR. Many credit card issuers have clauses stating that missed payments will cause introductory offers to be revoked. This causes your interest rate to revert to standard or penalty APR, which can make it harder to repay your debt.
Credit Score Drop
Companies report missed payments to credit bureaus like Experian, TransUnion, and Equifax if the payment is late for more than 30 days. This missed payment is then recorded in your credit report and could result in a significant drop of about 50 to 100 points on your score.
The higher the scores you had before the missed payment, the bigger the drop you will experience. Additionally, payment history forms 35% of your FICO report, making it an essential factor in determining your overall score.
Long-Term Impact on Credit History
Unfortunately, a late or missed credit card payment stays in your history for up to seven years. It serves as a red flag to future potential lenders and creditors. Even if you catch up with the payment, the record of your delinquency will remain.
Therefore, you may have difficulties securing loans, mortgages, and credit cards in the future. These effects could also trickle down to affect your eligibility for rental agreements, utility accounts, and employment.
You Could Be Sued
After missing payments for several months, your credit card company will likely turn over your account to a debt collection agency. Debt collectors are known to pursue payments aggressively.
- Frequent phone calls
- Letters
- Possibly in-person visits
When collection efforts fail, credit card companies could take legal action against you. This lawsuit includes the unpaid balance, additional fees, and interests. The legal effects of a lawsuit can be very devastating, so it's best to avoid this by reaching out to a credit card company and negotiating payment terms.
Conclusion
Missed credit card payments have severe consequences that affect you. Defaulting payments affect your credit score and can accumulate fees and interest. If the matter persists, you risk getting sued and losing your account.