Default on Credit Card? Here’s What Happens Next

Here’s what typically happens once you default:

Late Fees and Penalty Interest Rates

• Late Fees: Missing a payment results in late fees, which can range from $25 to $40 depending on the issuer.
• Penalty APR: Your interest rate may increase to a penalty APR, often as high as 29.99%, making it even harder to pay down the balance.

Negative Impact on Your Credit Score

• Each missed payment is reported to the credit bureaus—Experian, Equifax, and TransUnion—and can significantly damage your credit score.
• A single missed payment can lower your score by 50 to 100 points, with additional damage for continued non-payment.

Collection Calls and Letters

• Initially, the credit card company will try to collect the debt directly, contacting you via phone calls, emails, or letters.
• These communications can be persistent and stressful but must comply with the Fair Debt Collection Practices Act (FDCPA) if handled by a third-party collector.

Account Charge-Off

• After approximately 180 days of non-payment, the credit card company will likely charge off the debt. This doesn’t erase the debt but indicates the creditor no longer considers it collectible.
• A charge-off will appear on your credit report and remain there for seven years, further damaging your credit.

Sale to Debt Buyers or Assignment to Collectors

• Once charged off, the creditor may sell your debt to a debt buyer for a fraction of its value. Debt buyers or collection agencies then attempt to recover the full amount.
• You may start receiving communications from the debt buyer or collection agency instead of the original creditor.

Potential Lawsuit

• If the debt remains unpaid, the creditor or debt buyer may file a debt collection lawsuit against you.  Creditors file hundreds of thousands of collection lawsuits each year.  They usually have 4 to 6 years to do this depending on the statue of limitations.