What Can Credit Card Companies Do When Bills Are Not Paid?

When you accept a new credit card and sign the cardholder agreement, you agree to make regular payments on any balance you accrue. If you fail to do so, the credit card company has the legal right to take any action outlined within your cardholder agreement. Although the actual consequences of your credit card default may vary, depending on your provider, credit card companies all enjoy the same collection rights under the law.

Facts

When you begin missing payments, your credit card company will call you and send you letters notifying you that your payments weren't received. The credit card company will also assign late fees to your balance for every payment that you miss. As soon as you fail to make a payment for 60 days, the Credit Card Accountability, Responsibility and Disclosure Act permits the credit card company to increase your interest rate.

Features

After you don't make a payment on your credit card debt for six months, your credit card company will consider your account a loss and either sell or transfer the debt to a collection agency for recovery. While collection agencies employ the same basic collection methods as credit card companies -- calling consumers, for example -- debt collectors are typically much more aggressive in their efforts to recover the debt.

Significance

Credit card companies make regular reports to the credit bureaus. As soon as you start missing payments, the company will include this fact in its reports -- damaging your credit rating. According to MyFICO.com, the Fair Isaac Corp.'s website, missed payments have a greater impact on credit scores than any other single factor.

If your account ends up with a collection agency, this too will injure your credit rating. Collection agencies, like credit card companies, report their accounts to the credit bureaus. Regardless of whether you pay the collection agency, a collection account on your credit report is always derogatory.

Warning

Both credit card companies and collection agencies assigned to collect your credit card debt possess the right to file a lawsuit against you. Each state dictates how a creditor that wins a lawsuit against a debtor can use legal force to recover unpaid debts. Most states allow creditors the privilege of garnishing bank accounts and wages. Some states also allow creditors to place liens against real estate, vehicles and other personal property.

Effects

Although credit card companies often employ the services of collection agencies, they aren't required to do so. A credit card company has the right to write off any uncollectible debt as a business loss with the Internal Revenue Service. This lets your credit card company claim a tax deduction for your unpaid debt. If your creditor chooses this route, it will mail you a Form 1099-C. You must then claim the exact amount your creditor wrote off as income when you file your annual tax return.