Credit cards are a part of everyday life for some consumers. Consumers use credit cards for small purchases, such as movie tickets, and large purchases, such as an airline ticket. If you use a credit card, the issuer of that card expects you to pay the debt. It is helpful to know what could happen if you don't.
Considerations
When a credit card company issues a credit card, that extension of credit is based upon a written contract. By law, credit card issuers are required to disclose the terms of the credit agreement, including interest rate and credit limit. In 2010, the Federal Reserve also implemented new rules for credit card issuers. One rule is your credit card statement must now include a Minimum Payment Warning, which tells you how long it will take to pay off the current balance if you only pay the minimum payment due for each statement.
Effects
If you violate the terms of the credit card agreement by not making payments on the amount owed, you are in default and the credit card issuer can sue you. The company will seek to obtain a judgment against you. A judgment is a judicial decree from the court that specifies the amount you owe to the plaintiff. Once the company has a judgment against you, that company can now seek to collect the judgment amount by garnishing your wages, seizing your bank accounts or placing a lien on your property.
Significance
A judgment can follow you around for a long time. Each state has its own statute of limitations on how long a holder of a judgment can legally attempt to collect on that judgment. In Florida, the statue of limitations is 20 years from the date the judgment was entered by the court. Prior to the expiration of the judgment, some states allow the owner of the judgment to renew the judgment all over again, which resets the clock on the statute of limitations.
Warning
Unpaid credit card debt will appear on your credit report. According to MyFico, how well you pay your bills accounts for 35 percent of your FICO credit score. FICO scores range from 300 to 850 and late payments and charge-offs will lower it. A judgment entered against you will also appear on your credit report as a public record and this too will further lower your score. Under the Fair Credit Reporting Act, derogatory payment history, including judgments, will appear on your credit report for up to seven years. Even if you later pay the debt, that will not remove it from your credit report.
Prevention/Solution
There are companies that promise they can settle debt with credit card companies on your behalf. Be careful. This could be a scam, according to the Federal Trade Commission. Not only do these companies charge fees for their services but, according to the FTC, credit card companies are not required to settle a debt and you may have to pay the full amount due. The FTC suggest calling the creditor directly yourself to discuss payment of the account.
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