By Sandra Parsons
In a recent article, we described the implications of being less than three months late with your credit card payment. While late fees, increased interest rates, and a knock to your credit score are bad enough, there are even more serious consequences when your payment is late by ninety days or more. Nevertheless, there are some actions to take that could mitigate the damage.
When your payment is 90 days late
Whooh! Things are getting pretty bad right about now. You've been charged a fourth late fee. You're paying high interest rates. The accumulation of fees, your outstanding balance, and your high rates means your balance might be getting out of control.
Your credit report and credit score – Once you hit ninety days late, your credit card company will report you again. Now you have a nasty ninety-day missed payment on your report. That's hurting your credit score big time. It will affect your ability to secure credit in the future and the interest rates you'll have to pay if you do. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
If they haven't already, you can expect your credit card company to start calling you on the regular. They want their payment, and they are not going to be shy about it. They may start threatening to send your bill to an external collections agency.
If at all possible, you want to negotiate a payment arrangement with them and avoid being sent to external collectors.
When your payment is 180 days late
If you still haven't made your payment after 180 days, it's probably because you can't. You've been charged six late fees and have been paying increased interest rates for months. The situation is likely unmanageable.
If your credit card company has been unsuccessful in negotiating a payment arrangement with you, they may charge off your debt around the six-month mark. This means they accept that they are not going to get their money from you and sell your account to an external collections agency.
The collections agency will come after you hard, and they may not be all that friendly about it. They may offer you a deal to settle the debt if you pay a portion of what is owed. Experian Director of Public Education Rod Griffin advises caution when it comes to this option. "Any time an account is settled for less than you originally owed, it's going to hurt your credit score. The term 'settled' in the credit world is not a good thing – it means you didn't fulfill the contractual terms." Griffin does, however, acknowledge that settling may be the right choice in some cases. He concludes, "You just need to understand exactly what you are doing."
Your credit report and credit score - Unfortunately, the 180-day late payment, debt charge-off, and collections action will be reported to the credit bureaus and will show on your report for seven years. At this point, your credit score is in the toilet.
When your payment is a year late
If the collections agency hasn't been able to muscle payments from you, they might sue you (if they haven't already).
This all depends on the amount you owe, and how likely they are to get their money through legal action. Be aware that every state has its own statute of limitations regarding how long a creditor has to sue. Generally, though, it's between three and ten years.
If a creditor successfully sues you, a legal judgment will be made against you. The judgment means you're legally responsible for settling the debt. A judgment shows on your credit report and can stay around for seven years.
Missing a credit card payment is a bigger deal than you might have thought. Want to avoid this terrifying timeline? Always make your minimum payment by the statement due date. Of course, you should try to never charge more than you could pay off, so you don't carry a balance and rack up interest payments.
If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.