A delinquent credit card account is like having mold in your house. As time passes, they both silently get worse and become more difficult to fix.
When you make a payment after the due date on your credit card statement, you have a delinquent credit card account on your hands. You might think that one missed payment doesn’t matter. In fact, many people seem to believe this.
According to the National Foundation for Credit Counseling 2018 Consumer Financial Literacy Survey, 25 percent of Americans said they didn’t pay their bills on time. While it’s heartening to know that 75 percent do pay their bills on time, the 25 percent who don’t are on the way to ruining their credit. One missed payment can escalate into a collection account if you don’t take steps to fix it.
Unfortunately, there’s an upward trend in credit card delinquencies, according to data from the St. Louis Fed. In 2009, delinquencies peaked at 6.77 percent during the recession. By the end of 2015, delinquencies dropped down to 2.16 percent. At the end of March 2018, delinquencies were up to 2.54 percent.
If you miss a payment, hop into action right away. Read on to find out what to do if you have a delinquent credit card account.
[Read: The Best Balance Transfer Credit Cards of 2018.]
The Different Degrees of Delinquency
Delinquency is measured in days. Here is the timeline and the likely impact on your credit report:
Less than 30 days late. This is the most important date in the delinquent timeline. You’ll get hit with a late fee, but if you’ve been an excellent cardholder up until now, you can call and ask for the fee to be removed.
This actually happened to me several months ago. I had surgery, and in the chaos that followed, my payment fell through the cracks. I called my issuer and explained my situation — while also apologizing profusely, I might add. My late fee was removed, and the issuer wished me a speedy recovery.
If you make your delinquent payment before you’re 30 days late, it will not show up as a delinquent account on your credit report. So even though your account is technically delinquent, all the really bad stuff hasn’t happened yet.
I almost hate telling you this, because I don’t want you to think you have a “cushion” and then get sloppy. Your due date is your due date. Don’t live on the edge of that cliff, because you might fall off and get hurt.
30 to 59 days late. Now, you’re flirting with impending disaster. Your account will be reported to all three credit bureaus as delinquent. Oh, and you’ll get another late fee. Once you’ve missed paying your bill for an entire cycle, it’s hard to explain it away when you talk to your issuer.
When this goes onto your credit report, it stays for seven years. But you can take steps now to limit further damage. Reach out to your credit card company and ask for a hardship plan. You can negotiate for a break, which might include a lower annual percentage rate, a payment plan or skipping a payment for one month, among other things.
60 to 89 days late. You’ll likely be hit with another late fee, and now your account is reported as 60 days late to the bureaus. See how this keeps getting worse?
Time is running out, but you can still call your issuer and talk about how you can remedy this situation. You can’t get it off your credit report — unless it’s inaccurate — so focus on negotiating for better terms and maybe even getting a reduced balance to pay.
90 to 119 days late. You’re on a runaway train, but it’s still not too late to avoid the train wreck ahead. Bad things are happening at this point. You’ll have another late fee, your credit report now shows a 90-day delinquent account, and your balance is increasing due to the evil nature of compound interest.
Call your issuer today. The credit card company is already making plans to sell your account to a debt collector if you don’t pay before you’re 120 days late. Let your issuer know you want to work out a payment plan and make things right.
[Read: The Best Credit Cards for Bad Credit of 2018.]
120 days or more late. OK, this is the train wreck of credit card problems. Your account will probably be sold to a debt collector, and that will be reported to the credit bureaus. You’ll now have a collection account on your credit report.
What can you do at this point? You can talk to the debt collector — trust me, a collector will call you — and discuss options, such as payment plans or a reduced lump-sum payment on the balance. But before you agree to anything, make sure the debt amount matches what you have in your records.
And before making any payments, learn more about the Fair Debt Collection Practices Act. When you have debt collectors calling, you’re wading into murky waters, because debt collection laws vary by state. Empower yourself with knowledge so you don’t make things worse.
Other Effects of a Delinquent Credit Card Account
You’ve already learned about late fees and how a delinquent payment impacts your credit report. Your payment history comprises 35 percent of your FICO score. Since your credit score is calculated based on what’s in your credit report, a late payment reduces your score. The later the payment is, the greater the negative impact on your score.
There are two examples of this impact on myFICO.com. The first example is a man who is already struggling with a 680 FICO score. After a 30-day late payment, his score goes from 680 to somewhere between 600 and 620.
The second example is a woman with a 780 score. After a 30-day late payment, her score plummets from 780 down into the 670-to-690 range. Unfortunately, consumers with high credit scores suffer the biggest losses when they make a payment mistake.
Aside from a major credit score drop, here are a few other side effects that you won’t like:
— APR increase. According to the Credit CARD Act of 2009, your issuer can apply the new rate to your outstanding balance if you’re 60 days late with your payment.
— Penalty APR. Some issuers have done away with this practice, but penalty rates are still out there and can be as high as 29.99 percent.
— Lawsuit. Get a lawyer and try to settle the case. Sometimes, your lawyer can work out a repayment plan and the lawsuit will be withdrawn. Alternatively, you could end up having your wages garnished.
[Read: The Best Credit Cards for People with Fair Credit.]
If you’re in over your head, consider talking to a credit counselor. You can contact the National Foundation for Credit Counseling and get advice on how to tackle your debt no matter where you’re residing on the delinquent timeline.
How to Never Miss a Payment Again
It’s your job to make sound financial decisions. Have a budget and track your spending. Do these things, and you won’t have to worry about cleaning up the fallout from a delinquent credit card account.
You can set up text alerts from your credit card issuer (my personal favorite) so you get a reminder that your payment is due. You can also explore setting up automatic payments. As long as you have enough money in your account, this is an easy way to stay on top of your bills.
Just do whatever it takes to avoid late payments. And if you do falter in your credit journey, take action and resolve it quickly to limit the damage.
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What Is a Delinquent Credit Card Account? originally appeared on usnews.com
