What Happens to Your Credit if You Don't Pay Your Loan?

Until the early 1830s, you could still go to prison in the United States for failing to pay debts. It may seem tempting to stop paying back your loans and let your credit score take the hit, but this is the worst possible scenario. Failure to pay loans impacts your future ability to gain credit, but you can eventually recover.

Time Frame

How much defaulting--failing to pay a loan on time--affects your credit depends on how late you are with payments. A single payment late by 30 to 60 days wont hurt your credit much in the long-run, according to the Motley Fool. Stopping payment altogether is the most serious problem. Anything more than 90 days late is a severe negative mark that will drop your score heavily now and in the long-term. Payment history counts for 35 percent of your score in the FICO formula used by nearly every lender.

Effects

If a company concludes that you simply refuse to pay your loan, they will probably send the debt to a collections agency. People with a large loan in collections on their credit score tend to fall into the below average score range--659 and below, according to Insider Car Buying Tips. If you have a current delinquent account, you will probably fall into the worst tier of scores: 520 to 300.

Misconceptions

A lender or collections agency may sue you in court to get a judgment or pursue the debt until you declare bankruptcy. Bankruptcy, however, does not preclude you from getting credit again. Only the most serious item--bankruptcy--stays on your credit report for 10 years; the rest leave after seven or fewer, according to MSN Money Central. Even before this time you can get credit, such as with a secured credit card. Secured credit cards require a prepayment for your line of credit.

Tip

The worst you can do is ignore your bills. Milwaukee Wisconsin real estate agent Marty Searing recommends contacting your lender and asking to renegotiate the terms of the loan or a payment plan you can handle. If you pay less than the value of a loan it will still count as a delinquent account for seven years. You can ask for a month's reprieve on your loan repayment; the lender might grant your request and not report it to the credit agencies.