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What happens if you don’t pay your credit card?

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    Credit cards offer plenty of perks, and one of those is that you can purchase an item, take it home and have a small buffer of additional time to pay it off at the end of your billing cycle. All purchases made during your billing cycle—typically 28-31 days—are added to your statement balance. Depending on which payment you miss (and how long it takes for you to make that payment, if at all), you may face some consequences and risk hurting your credit score.

    In this article, you will learn about:

    • Minimum payments vs. billing statements
    • What happens if you don’t pay your credit card debt
    • How credit card delinquency can affect your credit score
    • Balance transfers
    • Why it’s important to pay off your credit card debt

    Minimum payments vs. billing statements

    When you have a credit card, you receive monthly billing statements that show. A billing statement may contain two types of balances: a statement balance listed as well as a current balance. Let’s explore each of these below.

    Statement balance

    The statement balance doesn't reflect any new activity since your last statement ended. It represents the purchases and payments on your card during a set period, known as your billing cycle, which falls between 28 to 31 days.

    If your billing cycle starts on the first of the month and ends on the 31st, the amount owed on the 31st is your statement balance. This reflects what you purchased during that 31-day period. Note that if you're carrying a balance from the previous month, that amount, along with the accrued interest, is also included in the amount due. Once your credit card statement is generated, the statement balance doesn't change until the billing cycle closes and you start a new one.

    Current balance

    Your current balance is your total balance, the sum total of everything you owe on your credit card. This amount may fluctuate. It is your most recent statement balance plus other transactions since your last statement was generated. After the billing cycle closes and you pay off your statement balance, the current balance is updated to reflect transactions made during the next billing cycle. As you continue to make purchases using your credit card, you may see your current balance increase until you make a payment. Note that whatever balances you don’t pay off will accrue interest, so you will owe more in the next billing cycle.

    Minimum payment

    You may have also seen the phrase minimum payment on your statements or on your banking apps. A minimum payment is one that is due on a particular date each month and is the smallest amount your issuer will accept towards your statement balance. To avoid interest and penalties, and for your payments to be on time, you must pay this amount by the due date.

    The minimum payment is calculated as a percentage (approximately between 1% and 3%) of your outstanding balance, or it can be a fixed amount. If your total balance ends up being less than the minimum payment due, you’ll likely need to pay the entire balance in full.

    Understanding the difference between the minimum payment and your credit card balances is helpful to determine what to pay, as well as what happens if you don’t.

    For example, if you pay your minimum payment instead of your monthly credit card balance, you can avoid late fees and additional charges. You won’t necessarily face a penalty, but remember the remaining balance can accrue interest, which results in higher payments for the purchases you’ve made. The longer you go without paying off this balance, the more interest you will accrue and need to pay over time.

    What happens if you don’t pay your credit card debt?

    If you don’t pay at least the minimum amount due each month, your credit issuer could report your account to one or all of the three major credit bureaus—Experian™, Equifax® and TransUnion®—as past-due. Additionally, your issuer will typically contact you and send overdue notices about your missing payments.

    When you fail to pay your credit card debt over multiple billing cycles, consequences can become significant, including late fees, increased APRs, charge-offs and the threat of delinquency.

    Late fees

    You can get a late fee if you miss your payment by just 1 day, and the longer you go without making a payment, the more fees or penalties you could face (more on that later).

    Be sure to check with your bank’s terms and conditions to see when your payments are due. It’s also possible for your late fees to increase the longer you go without paying off your credit card bill.

    Charge-offs

    If you never pay off your credit card debt, your account may get reported to the credit bureaus, and you could receive a derogatory remark on your credit card report, specifically a charge-off. A charge-off happens when a payment has yet to be made on a debt for a certain period of time, usually around 180 days.

    If you pay your charge-off in full, the report will show a paid charge-off. It will remain on your report but won’t have as much of an impact on your credit score as an unpaid charge-off. An unpaid charge-off will hurt your score and you may be contacted by a collections company.

    How does credit card delinquency affect your credit score?

    Credit card delinquency can affect your credit score as well because your payment history is a large part of calculating your credit score. If you keep missing payments, your credit score could suffer, falling by 100 points or more.

    Penalty APR

    If you're late with your payments, your credit card company could hit you with a higher annual parentage rate (APR). A penalty APR can be as high as 29.99% and applies to your card's balance and future purchases, dramatically increasing the amount you owe.

    According to the Federal Reserve, the average credit card Annual Percentage Rate (APR) was 18.43% in August 2022. Any APR below that figure would be likely be considered “good."

    What happens to your credit score when you don’t pay your credit card?

    If you miss payments, your credit score won’t be updated right away. Credit scores are usually updated once a month, depending on how many issuers you have and how often they report the information to the bureaus. Note that these dates could differ across card issuers, so you should check the terms and conditions.

    If you don’t pay your credit card balances at all, your issuer could report your account to one or all of the credit bureaus, which are also responsible for generating your credit score. Having missed payments on your credit report can impact your credit score significantly.

    You could also end up with having derogatory remarks on your credit report. A derogatory remark can appear as a negative item as a result of activity including late payments, missed payments and foreclosures. Having this remark on your report will drop your score and significantly impact your ability to get approvals for loans, mortgages and more.

    Balance transfers

    If you’re considering paying off your credit card debt, you may consider a balance transfer, which is when you move outstanding debt from one credit card to another. These transfers are usually used by consumers who are looking to move the amount they owe on a credit card to one with a lower, time-based promotional interest rate. This is done by opening a new credit card. card account to make this transaction. However, if you have a poor credit score, opening a new card could pose a challenge.

    Why it’s important to pay off credit card debt

    While having credit card debt can negatively impact your score, you can take proactive steps towards improving it. By settling your credit card debt, you can start to lower your credit utilization ratio and build up a better payment history—both are major factors when determining your credit score.

    In conclusion

    Missing credit card payments or not paying them off at all has a significant negative impact on your credit score. This is why it’s important to do your best to pay off your credit card balances, or at the very least, your minimum payment by the due date.

    When you monitor your credit card, make regular payments and practice good financial habits, your credit score can increase, which helps your chances of getting approvals for things like loans and other credit cards. Avoiding late or missed credit card payments can help protect your credit score. Empower yourself with financial knowledge by enrolling with Chase Credit Journey®.

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