If you’re falling behind on your credit card payments, you’re not alone. More Americans are delinquent on their credit cards (as well as auto loans and personal loans) than in the past 10 years, according to analysis by The Washington Post.
Credit card delinquency occurs when you get behind on your required monthly payments to a credit card company. Your account is considered delinquent after you have missed one payment. However, most card issuers do not report the delinquency to credit bureaus until a cardholder is 30 days past due.
Why Are Credit Card Delinquencies Rising?
Ongoing inflation means people are paying significantly more now than a year ago to purchase the same items. At the same time, the Fed continues to raise interest rates in an effort to combat inflation—meaning people are paying more to use their credit cards. The average credit card rate has risen to a record high of 20.6%, according to Bankrate, and interest rates are expected to continue increasing.
What Happens if My Credit Card Becomes Delinquent?
If you have missed credit card payments, your account is considered delinquent. After missing a payment, you may experience some negative financial effects, including:
- Changes to your credit score. When the credit card company reports late payments or delinquency to the credit bureaus, that information will typically have a negative effect on credit scores. Of the six factors used to determine your credit score, payment history carries the most weight.
- Interest rate increase. If you have a delinquent account, your credit card issuer may raise your interest rate significantly. That means any balances you may carry from month to month will accrue more interest, which can make it even more difficult to pay off your debt.
- Late fees and penalties. Typically, credit card companies charge late fees when you miss a payment. These fees can add up quickly and make it even more challenging to catch up on your payments.
- Collection efforts. If your credit card account becomes severely delinquent, the issuer may eventually charge off the debt and send it to a collection agency. Collection agencies can be aggressive in their efforts to recover the debt, including calling you, sending collection notices, and potentially taking legal action.
- Reduced access to credit. When lenders see a history of late payments or delinquency on your credit report, they may be less likely to approve you for new credit lines or loans. If they do approve you, the approval may come with higher interest rates and less favorable terms.
In addition to the financial effect of credit card delinquencies, most people suffer in other ways too. For example, financial stress resulting from credit card delinquency can take a toll on your mental and emotional well-being. Constant worries about debt, collection calls, and financial instability can lead to anxiety and depression. Financial problems like credit card delinquency can also lead to strained personal relationships.
What to Do About a Delinquent Credit Card Account
If you’ve missed one or more monthly credit card payments, your account is technically delinquent. But you can overcome delinquency. Start by following these steps:
- Contact the credit card issuer. Communicating with the credit card issuer is the best way to minimize the damage. Explain why you’re late paying, when you’ll be able to make a payment, and whether you can pay any portion of what’s owed now. Some issuers will work with you to develop a payment plan that can help you get out of delinquency.
- Expect to pay fees and interest. Even if your credit card issuer is willing to be flexible, you’ll probably have to pay late fees and additional interest. If you contact the issuer soon after your first missed payment, they may waive some of the fees.
- Don’t count on your rewards. Most credit card agreements include a stipulation that your account must remain current in order to earn rewards. So, if you’ve missed one or more payments, you may also lose your rewards.
- Find ways to get current on your payments. You can minimize the negative effects of a delinquency by getting your account current as soon as possible. Adjust your budget to free up money to pay the missed payments and fees, or consider selling some unwanted items or taking on a part-time job.
- Keep an eye on your credit. Monitor your credit scores and reports to see how they are affected by the delinquency. When you are able to pay off the balance, make sure your credit reports reflect that. It may take several years for the delinquency to come off your credit report, but if you’re making positive financial moves, that positive information can help counteract the negative effects.
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