Many people open credit card accounts with the best of intentions. They plan to pay off balances on time each month, but then they have difficulty making payments each month, if at all. It's extremely important to make at least the minimum payments on your credit cards each month. If you can't, you face consequences that can have an impact on your ability to open new credit accounts, rent property or even gain new employment for the next several years.
Collection Calls and Letters
You'll start receiving calls from credit card companies a few days after your payment due date. Creditors are known to call several times a day in an attempt to reach you, and they'll also call your work if they have that phone number. Collectors can be nasty to deal with, and some will threaten legal action if you're not able to make payment arrangements. Your creditors will also mail you collection notices within a few weeks of a missed payment.
These phone calls and letters can become annoying and embarrassing, especially if they call your family or workplace to find you. However, creditors and collection agencies are required to stop calling you if you send them a letter demanding that they stop.
Negative Credit Report and Low Credit Score
Credit card companies begin reporting late payments to the three credit bureaus (TransUnion, Experian and Equifax) after 30 days. Your payment history comprises 35 percent of your FICO credit score, so consistently missing payments will significantly decrease your score.
In addition, credit card companies will update your payment status each month that you're late--so, if you don't pay your bill for two months, your report will show 60 days late, three months will show 90 days late, etc. Normally, a credit card company will "charge off" your account after six months of nonpayment. A charged-off account is reflected as such on your credit report and is a significant blemish on your report. Charging off your account usually means that your credit card company has sold your account to an outside collection agency.
Late payments and charged-off credit card accounts will remain on your credit report for at least seven years. Over time, these accounts will mean less for your overall credit score, giving you the opportunity to rebuild your credit report if you pay your other credit accounts on time each month.
Lawsuits
If you owe several thousand dollars, your credit card company could opt to sue you to be repaid. The decision whether you'll be sued depends largely on the credit card company and whether if you have employment or property that can be used as a means of repayment.
If you're sued, you'll likely have to hire a lawyer and pay legal fees to fight the case. If the credit card company wins the suit, the court will likely make you pay legal fees. This will increase your outstanding debt considerably.
Wage Garnishment
If credit card companies sue you and win, it's possible that the court will opt to garnishee your wages. Wage garnishment means that a predetermined payment amount will be automatically deducted from your paycheck each pay period until your debt is repaid. This not only decreases your income, but it can also cause embarrassment because your employer will know that you've been sued for nonpayment of debt.
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