What Happens When My Credit Card Goes Delinquent?
Credit card delinquency is when your credit card payment is late by 30 days or more. In addition to late fees and a potential ding to your credit report, delinquency could result in credit card suspension, account closure and eventually the account being charged off as a bad debt. The good news? You have options to fix this problem and minimize the negative impact to your credit history.
What do I do if my card goes delinquent?
Getting caught up on payments as fast as possible is the best way to get your account back in good standing and keep your credit history healthy. If you’re a Discover Cardmember, you can call 1-800-347-2683 for assistance on how to get back on track.
In fact, if you get your account current within 30 days of your first missed payment, that late payment should not even show up on your credit report.
If you don’t get caught up on payments and your credit card goes delinquent, you could face late fees, credit card suspension, account closure, and eventually the account being charged off as a bad debt.
When your credit card gets suspended, it means that your card issuer has taken away your ability to make purchases with the card. Typically, credit card issuers suspends a delinquent account to help limit the total owed.
Different kinds of suspension can happen at different times. For instance, a creditor may “stop” or “pause” purchase authorization, such as when a cardholder has reported the card as lost or stolen, and this is not necessarily because of a past-due payment. Early in delinquency — sometimes in the first few days or months — the card issuer can stop authorizing purchases when you use your card. As the delinquency matures — usually when you’re 3-4 months late — your creditor may suspend your account altogether and certain actions are required to reverse the suspension. That could entail you making the full minimum payment, and the creditor conducting a review of the account.
A card suspension isn’t considered a negative on its own, but it may lower your FICO Score1 when paired with other negatives such as late payments, says Can Arkali, senior director of analytics and scores development at FICO.
Your payment history makes up 35 percent of your FICO Score, so late payments may have a negative impact. “Payment history is one of the most important drivers of the FICO Score,” Arkali says.
One way to get your account back in good standing and minimize some of the negative impact to your credit is to pay the required minimum payment plus the late fee.
But what if you can’t pay? A cardmember who is going through a financial hardship such as a job loss and lacks the funds to pay the required amount might be able to get back on track by contacting the credit card issuer to find out if they’re eligible for a custom repayment plan.
Another option: Work with a nonprofit credit counselor, who might be able to draw up a debt-management plan that could include lower payments and lower interest. Keep in mind, these are typically programs that your credit counselor communicates with your creditor, and any repayment plans your counselor proposes must be agreed upon by your creditor.
If more time passes and you still haven’t made acceptable payments towards your past-due balance or worked out a payment plan, the card issuer may revoke your credit card. The time frame can vary by credit card issuer, but this generally happens after four to five months of missed payments. If your credit card gets revoked, you’ll never be able to use the card again, even if you immediately pay your balance in full.
Having a card revoked can negatively affect your credit utilization ratio, which is the percent of available credit you’re using. For example, if you have $4,000 in available credit on two cards and you owe a total of $1,000, your credit utilization ratio is 25 percent.
Generally speaking, the lower your utilization ratio, the better. And if an account is revoked, that line of credit no longer counts as available credit, Arkali says. “That can increase your utilization ratio,” he says.
Your credit utilization ratio is a key piece of how your credit score is calculated. “Amount owed” makes up about 30 percent of the score, so using up too much of your available credit can have a negative impact.
Even if your card has been revoked, you still have options. You can reach out to your creditor to discuss repayment options or seek the help of a nonprofit credit counselor.
A “charge off” is one of the final stages of credit card delinquency. By the time an account gets charged off, it has typically been in delinquency for about six to seven months without acceptable payments or sufficient cardholder attempts to right the ship.
A credit card charge off means that the credit card issuer has changed the way it categorizes the debt, from an asset to a loss. However, that doesn’t mean that the creditor will stop trying to collect the amount due. The cardmember still owes the debt and is still expected to pay it back in full.
A charge off will be reported to the major credit bureaus and will stay on your credit report for up to seven years. The resulting drop in your FICO Score depends on many factors, but it could go down by 100 points or more, Arkali says. “Charge offs are considered severely negative events.”
Do whatever you can to avoid the later stages of credit card delinquency. Seek help from your creditor to get through a delinquency, repay your debt and keep negative impacts to your credit score to a minimum.
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