Not Paying Credit Cards – A Timeline to Avoid

By Sandra Parsons

With so many bills and so many due dates, you may sometimes be tempted to let a credit card payment slide until payday. Our advice? Don't do it. Here's what happens when you start missing credit card payments.

When you fail to make your minimum credit card payment by the statement due date, it's considered late. This is true even if it's late by just one day. You might think a day or a week is no big deal, but even a minor slip-up can have the following consequences:

Late fees – If you miss a minimum payment, you can expect to be charged a late fee to the tune of $15-$40 dollars. This fee will be applied to your next statement.

Increased interest rate – If you miss a payment, your credit card issuer may increase your interest rate. If you currently enjoy a low introductory rate, you can kiss that goodbye. If you're paying regular interest rates, they can increase your rate for six months. Ouch!

Every month, creditors report late payments to the three major credit bureaus, which can impact your credit score. Your payment history typically accounts for about 35% of your total score, so missing a payment can be a big deal. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

If your payment is less than thirty days late, there might be time to fix the situation. According to Alexander Lowry, Professor of Finance and Executive Director of the Master of Science in Financial Analysis program at Gordon College in Wenham, MA, "If you missed your credit card payment by one day, you probably don't need to sweat it. If you're lucky, the lender won't report the lapse. Most lenders do not report missed payments until the account is thirty-plus days past due. "

Tip: If you mess up and miss a payment by a few days, make your payment ASAP and call your credit card company. Explain the situation and ask them to consider waiving your late fee/interest increase. If this is your first late payment, there's a good chance they'll be willing to work with you.

Once your payment is thirty days late, you can expect the following:

Late fees and increased interest rates – You will be charged a second late fee for the second missed due date. Your creditor will be less likely to consider waiving penalties at this point.

A late payment on your credit report – If your payment is more than thirty days late, your creditor will most likely report it to the credit bureaus. That means your credit report will show that you missed a payment by thirty days.

Impact on your credit score – That thirty-day late payment on your credit report is going to impact your credit score, although it's hard to say how much.

Professor Lowry explains, "Just one late payment can drastically lower your credit score, especially if you have a good or excellent credit score. A recent late payment can cause as much as a 90- to 110-point drop on a FICO score of 780 or higher. Ironically the better your credit, the more you may feel the sting. One slip-up and your credit score may take a dive — even if you have otherwise stellar credit."

If your credit score is lower to begin with, the hit won't be as dramatic. Certified Credit Counsellor Steven Millstein of Credit Zeal says, "If you have a 600 credit score and a thirty-day late payment shows up, you may only lose 50 points. It really does depend on where you are at and how fragile your credit score is. The higher your credit score is, the more fragile it is."

At this point, you are being charged a third late fee, and you're still paying those increased interest rates. This means it's even harder to make your minimum payment.

Your credit report – After you reach the sixty-day mark, your credit card company is going to notify the credit bureaus that your payment is still outstanding. Now your credit report will show a sixty-day late payment.

Your credit score – A sixty-day late payment is going to hurt your credit score, bottom line. According to Millstein, "A sixty-day late of course comes after a thirty-day late credit card payment and you are likely to lose a further 30 to 50 points on your credit score. You really need to know the dates to minimize a further drop in your credit score and never go past ninety days."

And what happens if you still don't pay after three months? Or longer? Check out the second part of this terrifying timeline that you never want to find yourself on.

If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.

Photo ©iStockphoto.com/MladenZivkovic

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