The Ultimate Guide to Credit Cards
Friday, July 19, 2024

What is Credit Card Delinquency? When Late Payments Lead to Credit Damage

What Is Credit Card Delinquency
Eric Bank

Written by: Eric Bank

Eric Bank
Eric Bank

Eric Bank is an M.B.A. who has covered financial and business topics since 1985, appearing regularly on Credible, eHow, WiseBread, The Nest, Zacks, Chron, and dozens of other outlets. Eric specializes in taking complex subject matters and explaining them in simple terms for consumer audiences, particularly in the world of personal finance. Eric holds a Master's in Business Administration from New York University and a Master's in Finance from DePaul University.

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Edited by: Jon McDonald

Jon McDonald
Jon McDonald

Jon leverages 15-plus years of journalism expertise to inform financial consumers about emerging trends and companies making an impact in the industry. He is most knowledgeable in the areas of budgeting, credit card rewards, and responsible credit use. Jon has a passion for writing and editing, and his articles have appeared in publications produced by The New York Times.

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Reviewed by: Ashley Fricker

Ashley Fricker
Ashley Fricker

Ashley Fricker has more than a decade of experience as a finance contributor and editor, and has specialized in the credit card industry since 2015. Her credit card commentary is featured on national media outlets that include CNBC, MarketWatch, Investopedia, and Reader's Digest, among many others. She has worked closely with the world’s largest banks and financial institutions, up-and-coming fintech companies, and press and news outlets to curate comprehensive content and media. Ashley holds a bachelor's degree in multimedia journalism from Florida Atlantic University.

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Opinions expressed here are ours alone, and are not provided, endorsed, or approved by any issuer. Our articles follow strict editorial guidelines and are updated regularly.

Credit card delinquency happens when you don’t pay your credit card bill on time. Credit card companies report delinquency to the credit bureaus if you are 30 days or more late on your payment. 

Being delinquent can really hurt your credit, so finding a way to always make payments on time if vital. I’ll cover everything you need to know about delinquency, including the warning signs of financial stress and how to rebuild your credit score if late payments damage it. 

Understanding Credit Card Delinquencies

When you have a credit card, you need to avoid delinquency by making payments on or before the due date. Delinquency can damage your credit score and make it challenging to get loans or new credit cards later.

When Accounts Become Delinquent

To understand how delinquency works, you need an explanation of credit card billing procedures.

A billing cycle is the period between one credit card statement and the next. It usually lasts about one month. During this time, any purchases, payments, or other transactions you make will show up on your next credit card statement. 

At the end of each billing cycle, your credit card company will send you a dated statement showing you what you owe for that period, the minimum amount due, and the payment due date. Most credit cards offer an interest-free grace period on purchases, lasting 21 to 28 days from the statement end date to the payment due date.

Credit card disclosure example
Issuers communicate information about grace periods in a card’s disclosures.

You can avoid interest on purchases if you repay your entire balance by the payment due date. Paying less than the full purchase balance will cause interest to start accruing. Moreover, the card will suspend your grace periods until you repay your total balance.

You must pay at least the minimum amount due (typically around 5% of your balance) by the payment due date, or you’ll face a late payment fee, and the delinquency timer will start ticking. 

That timer must run for 30 days from the due date (i.e., at least 51 days from the statement end date) before the card issuer can report your delinquency to the major credit bureaus, according to the standards set by the Consumer Data Industry Association (CDIA).

The CDIA is the credit bureau’s trade association, and it includes the three largest bureaus: Experian, Equifax, and TransUnion. It publishes its Credit Reporting Resource Guide each year, which sets reporting standards for some 14,000 providers of information (including credit card issuers) to the credit bureaus. The standards call for card issuers to report your activity for the latest billing cycle, including balances and payments.

According to the CARD Act of 2009, the issuer must make the issuer wait 30 days from the payment due date before reporting late payments. Until then, your account is in good standing

Your issuer can alert the credit bureaus if your account becomes delinquent, and your credit reports will take note. That’s not good because the mark remains on your credit reports for seven years and can severely damage your credit score.

Credit card delinquency stages graphic

If you keep missing payments, your card issuer can report you as 30, 60, 90, 120, 150, and eventually 180 or more days late. Each step up can hurt your credit score even more, so it’s important to catch up if you can.

Eventually, the issuer may charge off your account and/or send it into collections, both of which can further hurt your credit score — depending on how much it has fallen already.

Unpaid credit card bills lead to a series of negative consequences. You’ll face late fees, mounting interest payments (possibly at a high penalty APR), a damaged credit score, and, eventually, card cancellation, a charge-off, and the attention of a debt collector. It’s crucial to understand the severity of these outcomes to motivate timely payments. 

You can avoid the terrible whirlwind your late payment generates by paying the 5% minimum any time before your issuer reports your delinquency.

Factors That Lead to Delinquency

Some factors leading to delinquency result from emergencies that may have distracted cardholders. But often, a person’s negligence or overspending is the root problem.

One of the best ways to prevent delinquency is to keep track of your spending. It’s a clear sign of overspending when you don’t have enough money left to pay your credit card bill’s minimum amount due.

A budget can help you manage your spending and avoid this problem. In the following sections, I’ll discuss several strategies to help prevent delinquency — or at least minimize its impact.

Early Financial Warning Signs

When it comes to managing your money, it’s important to notice early signs that you may be heading into the kind of financial trouble that leads to credit card delinquency. Watch out for these signals:

  • Using Credit for Everyday Expenses: If you start using your credit card for everyday purchases (e.g., groceries, gas) and you can’t pay these off each month, it signals you’re spending more than you earn.
  • Skipping Payments: Missing a credit card payment or deciding to ignore it because you don’t have enough money can be a major warning sign. It shows that your finances aren’t stable.
  • Making Only Minimum Payments: If you find that you’re only making the minimum payments on your credit card, it probably means you’re falling deeper into debt. Climbing back out may be difficult and, in the worst case, may end in bankruptcy.
  • Borrowing to Pay Off Debt: Using one credit card to pay off another or taking out loans to pay your bills are signs that you need to reassess your financial situation.
  • Growing Credit Card Balances: If your card balances keep going up each month, it can lead to more interest and bigger debt. That’s a sign that you need to pay it down.
  • Increasing Fees: Late or overdraft fees are signs that you have to manage your debts better. These fees can add up quickly and make it even harder to get your finances under control.

Recognizing these signs early on can empower you to take steps to improve your financial situation before it worsens. If you notice any of these warning signs, consider making a budget, cutting unnecessary expenses, and seeking advice from a financial advisor.

By being proactive, you can prevent or minimize the impact of credit card delinquency on your financial health.

How Delinquency Impacts Your Credit Scores

Credit card issuers send monthly reports to one or more major credit bureaus. The bureaus compile the information into your credit reports, which serve as the basis for your credit scores. This process is crucial in understanding how delinquency can impact your overall credit health.

How Credit Scores Factor in Late Payments

Your credit score is a number that tells lenders how risky or safe it is to loan you money. It’s based on data from your credit reports, including how long you’ve had credit, how much debt you owe, and most importantly, whether you pay your bills on time. The better you are at paying on time, the higher credit score you can maintain.

FICO (from the Fair Isaac Company) is the dominant credit scoring system for consumers. FICO scores range from 300 to 850, with a higher score indicating lower risk to lenders. Five major factors determine a consumer’s score:

  • Payment History (35% of your total score): This is the most critical factor. It includes whether you’ve paid your credit accounts on time.
  • Amounts Owed (30%): This checks how much you owe in total and in relation to your credit limits and includes your credit utilization ratio.
  • Length of Credit History (15%): This measures how long you’ve had credit. A longer credit history is typically better.
  • New Credit (10%): This includes the number of new accounts you have opened and the number of hard inquiries creditors have made into your credit over the last year. Hard inquiries indicate that you are seeking new credit.
  • Credit Mix (10%): This minor factor looks at the types of credit you have, such as credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. As far as FICO is concerned, the more the merrier.

Payment history is the most important factor, and it inflicts the most damage if you miss payments. Remember, you have 51 or more days past the statement date to pay at least the minimum amount due and avoid the credit score impact.

If you don’t make a payment by the due date, your credit card will assess a late fee. Interest will start accruing, and you may face a penalty APR that remains in effect indefinitely. You may also cause issuers to cancel any active introductory promotions for a 0% APR on purchases and/or balance transfers. 

Your credit score can lose dozens of points when your issuer reports you as delinquent. The damage worsens with longer delinquencies, charge-offs, and collections.

Delinquent Accounts Can Affect Scores for Years

Late payments can stay on your credit report for up to seven years. Delinquent accounts show that you have trouble paying back what you owe, which makes lenders see you as a risk.

Paying off delinquent accounts can prevent them from further harming your score. While the record of the late payment may still be in your report, paying what you owe can partly alleviate the damage.

Also, owing money can be stressful. Clearing your debts can relieve stress and make your financial situation easier to manage.

Rather than leaving your finances to chance, I strongly recommend you establish a set of strategies for debt management. For example, if you’re struggling to make payments, contact your creditors to set up a payment plan. They may allow you to pay smaller amounts over a longer period.

table displaying time items can stay on credit reports

Pay off debts with higher interest rates first because they cost the most money. This is the “avalanche” method. You can also choose the “snowball” method, in which you pay off smaller debts first to build momentum.

Consider consolidating your debt by taking out one new loan to pay off multiple accounts. It can simplify your payments and offer a lower interest rate.

Alternatively, you can consolidate credit card debt through balance transfers. Transferring multiple credit card balances to a single card with a lower interest rate can simplify payments and reduce interest costs. It’s best to use a new credit card with a 0% introductory APR for balance transfers and repay your debts before the promotion expires.

If you’re overwhelmed by debt, consider talking to a credit counselor, which I discuss in greater detail below. Effectively managing your debts can help you avoid delinquency and improve your credit score. Try to stay on top of your payments and keep your finances in good shape.

Strategies to Prevent or Minimize Damage 

If you’re not paying attention, it’s easy to forget when your credit card payment is due. Missing this date can lead to delinquency. You can avoid this problem in several ways, including requesting payment alerts from your credit card issuer, setting up automatic payments, and using personal financial software for payment reminders.

Set Up Automatic Payments

Automatic payments are especially useful during emergencies (such as health issues or the loss of a job) when you are focusing your attention elsewhere. Most issuers let you link your credit card to your bank account and specify how much to automatically pay on the due date — the minimum amount, an arbitrary figure, or the entire balance.

Actively Monitor Your Credit

Third-party credit monitoring, either from your credit card or an independent service, can be a powerful tool for preventing credit account delinquency. Credit monitoring services alert you to any new activity on your credit report, such as newly opened accounts or changes in your credit card balances. By tracking this activity, you can spot unauthorized use or errors quickly before they escalate into bigger issues that could affect your ability to pay.

Equifax credit monitoring screenshot
Credit bureaus, such as Equifax, offer credit monitoring services to consumers.

These services provide regular updates on the status of your credit accounts, including your current balances, payment due dates,  and minimum payments due. This information helps ensure that you don’t miss payment deadlines simply because you forgot or weren’t aware of an upcoming due date.

Credit monitoring tools often track your credit utilization ratio, which is a key factor in your credit score. Maintaining a low credit utilization ratio (i.e., keeping your unpaid balance below 30% of your credit limit) is crucial for keeping your credit score healthy.

Some credit monitoring services include reminders about upcoming payment due dates. These alerts can help you manage your finances more effectively and ensure on-time payments. It’s an effective way to avoid late fees and potential delinquency.

By consistently monitoring your credit, you can identify trends that indicate future financial stress, such as gradually increasing debt levels. Recognizing these patterns early on can prompt you to adjust your spending or seek advice before you become delinquent.

Repay Written-Off Debts

Repaying a written-off credit card debt, even though it may initially seem unnecessary, can be beneficial. Even if a debt is written off, it still shows up on your credit report and hurts your score. Paying it off can resolve that account faster and possibly improve your credit score.

FICO score factors graphic
Your payment history is the most influential factor in your credit scores.

Sometimes, the card issuer money may try to take you to court to get the money back. You can avoid this problem if you pay off the debt. Repaying the debt can also prevent debt collectors from constantly calling you, which can add stress to your life.

You may talk to a debt collector and agree to pay less than what you originally owed. Many people feel better when they pay off their debts because it’s the responsible thing to do.

Finally, if you pay off old debts, lenders and card issuers may be more receptive to you in the future because they see you’re serious about paying back what you owe. 

You have certain rights under consumer protection laws when you make late payments on your loans or credit cards. These laws ensure you’re treated fairly, even if you have trouble paying your bills on time.

Your Rights as a Consumer

Consumer protection laws safeguard buyers of goods and services and people who borrow money. They ensure that businesses and lenders act fairly and transparently. 

For example, some laws prevent lenders from charging unfairly high interest rates and ensure they clearly explain all the terms of any loan or credit agreement.

The Fair Credit Reporting Act is a key law that gives you specific rights regarding your credit information. This chart summarizes its significance:

Access to Your Credit ReportYou have the right to view your credit report for free once a year from each of the three major credit bureaus.Knowledge: Allows you to understand your credit status and ensure all information is correct.
Dispute ErrorsSuppose you find incorrect information in your credit report. In that case, you can dispute it, and the credit bureau must investigate and correct it.Accuracy: Ensures your credit report reflects true and fair information, impacting loans and credit approvals.
Privacy of Credit ReportOnly someone with a legitimate need can access your credit report, such as a creditor, landlord, or employer.Security: Protects your personal information,  and prevents misuse or unauthorized access.
Notice of Adverse ActionSuppose a creditor rejects your application based on your credit report. In that case, it must notify you about the specific reasons and the source of the report.Awareness: It informs you of the reasons for your denial and prompts you to review your credit report for errors or areas for improvement.

Understanding these rights can help you manage your finances and ensure that creditors treat you fairly. If you think your rights have been violated, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or seek legal advice to protect your interests.

When Accounts Go Into Collections

When you don’t pay your bills for a long time, your debts may eventually go into collections. This means your original creditor has given up trying to get the money from you directly and has either sold your debt to a collection agency or hired one to collect on their behalf. Here’s what happens in these situations:

  1. Account Delinquency: First, your account becomes delinquent 30 days after the payment due date.
  2. Communication from Creditors: The creditor will attempt to contact you to recover the debt. If this fails, it might move to the next step.
  3. Debt Sent to Collections: Usually, after several months of non-payment, creditors charge off your debt as a loss and send it to collections. This means a collection agency will now start contacting you.
  4. Collection Attempts: Collection agencies will contact you through phone calls, letters, and emails to try to collect the payment.
  5. Keep Trying to Collect: The collection agency may keep trying to get the money from you. This means they can keep calling or sending letters.
  6. Resell the Debt: Sometimes, if a collection agency can’t get the money from you, they may sell your debt to another agency. This new agency will then try to collect the money.
  7. Legal Action: If the collection agency thinks it’s necessary, they may sue you. The court may decide that you have to pay and garnish money directly from your paycheck or take some of your property to pay off the debt.
  8. Charge off the Debt: In some cases, if the debt is very old or the agency doesn’t think it can collect, it may write it off. This doesn’t mean you don’t owe the money anymore; it’s just that the agency has stopped trying to collect it.

The law that governs how collection agencies can deal with you is the Fair Debt Collection Practices Act (FDCPA). This federal law provides you with several rights to ensure that debt collectors treat you fairly and do not use abusive, deceptive, or unfair practices. Here are some of your key rights under the FDCPA:

  • When They Can Call: Debt collectors cannot call you early in the morning or late at night. They are only allowed to call between 8 AM and 9 PM. They also can’t contact you at work if they know your boss doesn’t allow those calls.
  • No Harassment: They are not allowed to be mean or threaten you. They can’t yell, use bad words, or lie to scare you into paying.
  • They Must Prove the Debt: If you get a call about a debt, you have the right to ask for written proof that you really owe the money. They must send you this information.
  • You Can Tell Them to Stop: You can write a letter to the debt collector telling them to stop contacting you. Once they get your letter, they should not call or write to you anymore, except to say there will be no more contact or to let you know if they are going to take some specific action.
  • Dispute the Debt: If you think the debt isn’t yours or the amount is wrong, you can send a letter to dispute it within 30 days of when they first contacted you. They have to stop bothering you until they send proof that the debt is yours.

These rules help ensure that debt collectors treat you fairly. If a collector ignores these rules, you can report it to the Consumer Financial Protection Bureau or even take it to court.

How to Resolve Disputes with Creditors

You can also take certain steps when you find a mistake on your credit card bill or you think a creditor has charged you incorrectly. First, you should contact your creditor immediately. It’s best to do this in writing so you have a record of your complaint.

Tell them what you think is wrong, and provide any proof you have, including receipts. Creditors usually have to respond to your complaint within 30 days. They must tell you if they agree there’s a mistake or if they believe the bill is correct.

To initiate a credit card dispute, cardholders can:

  • Call their issuer. Credit card companies typically list their phone number on the backs of credit cards.
  • Email their issuer.
  • Message their issuer through the company’s app.
  • Send a letter in the mail to their issuer.

If talking to your creditor doesn’t solve the problem, you can consider negotiating. Sometimes, if you owe money and can’t pay the full amount, you can talk to your creditor about setting up a payment plan. When you negotiate, be clear about what you can spend and when.

It helps to explain your financial situation honestly so the creditor understands your limits. Consider legal action if you still can’t resolve your issue through negotiation. This means taking your dispute to court or seeking help from a lawyer.

Before it gets to this point, you could also try reaching out to a consumer protection agency for advice. They can guide you on your rights and the next steps you can take.

Dealing with disputes can be stressful, but understanding these concepts can help you manage the situation more effectively. Always keep records of your communications and agreements with creditors, as these can be very important if a dispute escalates.

Financial Education and Assistance Resources

Getting the right financial education and assistance can make a huge difference to your financial health. Whether you’re learning online, attending workshops, or getting help from a professional, taking these steps can help you build a stronger economic future.

Online Resources

The internet is full of websites and tools that can help you learn about managing your money. These resources can teach you how to budget, save, and invest, among many other financial lessons. Here are some of the leading nonprofit organizations providing financial education:

  • National Foundation for Credit Counseling (NFCC): It offers a range of financial counseling services, including budgeting, debt management, and credit issues, and it has free educational materials and tools on its website.
  • Financial Industry Regulatory Authority (FINRA) Investor Education Foundation: Provides extensive resources like interactive tools, articles, and videos on investing and financial planning through its website.
  • Consumer Financial Protection Bureau (CFPB): Offers information on various financial topics such as mortgages, credit cards, and student loans, including guides, tools, and FAQs to help understand financial rights and responsibilities.
  • Managed by the Federal Financial Literacy and Education Commission, this site provides tools and information on financial decisions, including home buying, budget management, and investing.
  • America Saves: The Consumer Federation of America manages it, and it provides strategies for saving money, financial assessment tools, and tips on creating and adhering to a savings plan.

This list is only partial, and your state may also offer additional free educational resources.

Community Resources

Many communities host workshops and classes about money management. These are often free and can give you a chance to learn new skills and ask questions in person. 

Additionally, many local nonprofit organizations provide assistance with financial issues. They can offer guidance on areas including reducing debt or saving for the future. You can usually find these organizations through local libraries or community centers.

Professional Resources

Sometimes, it’s a good idea to get help from a professional, especially if you have complicated financial issues like looming debts or planning for retirement. Financial counselors and advisors are trained to give you advice that fits your specific situation. 

These professionals can help you make a plan, stick to it, and reach your financial goals. If you’re thinking about getting professional help, look for recommendations from trusted sources and check reviews online to find someone who has a good reputation and the right qualifications.

NAPFA financial advisors logo
NAPFA’s registered fee-only, fiduciary financial planners are duty-bound to look out for consumers.

The National Association of Personal Financial Advisors can help you find a nearby fee-only, fiduciary financial planner — meaning one who works with your best interests in mind.

Learning about finance is important because it helps you make smarter decisions with your money. As you continue learning, you can manage your money better and avoid common financial problems.

Late Payments Have Lasting Financial Consequences

Making late payments on your credit card or loans can have serious effects on your financial health. When you miss a payment deadline, it is recorded on your credit report as a negative mark, which can lower your credit score significantly. 

A lower credit score makes it harder for you to get approved for new loans and credit cards and may even impact your ability to rent a home or get certain jobs. Plus, once your credit score drops, it can take a long time to bring it back up.

Late payments can hurt your score and lead to more immediate financial problems. You may have to pay late fees, and your interest rates on existing debts could increase. 

If you continue to miss payments, the creditor may send your account to a collections agency, which adds even more stress and potential extra costs. For your own sake, try to make all your payments on time or contact your creditors to discuss options if you’re struggling to keep up.