Not paying your credit card bill is a serious matter. Known as delinquency, it happens when you don't make the minimum required payment each month. While a common threshold for delinquency is 30 days late on your payment, it usually takes two months of missed payments before the matter escalates to credit reporting agencies. When reported, delinquency can damage your credit score and limit your ability to borrow in the future. The good news, though, is managing delinquency can be a straightforward process with the right knowledge.
Every time you use your credit card, you are taking out a loan from your lender. Much like any loan, this needs to be paid back in timely increments to avoid falling into delinquency. If you bypass the terms of your agreement and miss these payments, your account can be reported as delinquent.
The severity of delinquency is measured in levels, corresponding to how many payments are missing - often referred to in days. Starting from the day after your first missed payment, the days accumulate to paint a picture of your credit health. But don't panic if you miss one payment, it usually takes two before it's reported to credit bureaus. This gives consumers a buffer zone, allowing one error before the triggers pulling down your credit score are activated.
Low levels of delinquency do minor damages to your credit score, but repeated missed payments will send it spiraling downwards. After three missed payments, your credit score might woefully plunge by up to 180 points. If four payments are missed, the repercussions compound. Your account could be handed over to debt collectors and after five missed payments, legal actions could become a looming reality.
Delinquent borrowers also face the possibility of suspended or permanently revoked charging privileges. This can lead to account closure after full payment. While this may seem punitive, it's important to remember the silent contract of trust between you and your lender. Several months of unpaid bills is a significant breach of that trust.
But every mess has a cleanup process. If you find yourself swimming in delinquency, making one minimum payment can stop the worsening damage. It's important to know that being reported as 90 days delinquent is not as damaging as a 120 days report. Doable first steps include making credit card payments that are greater than or equal to the minimum required and avoiding confusion between total balance due and minimum payments required.
While one minimum payment stops the delinquency from worsening, making a double payment decreases it. A good tactic is to focus on settling your current month's minimum and one previous missed payment. Diligent clearing of all missed minimum payments plus the current dues can lead you out of the delinquent zone. This path calls for understanding your debt situation, a plan, and patience. But, it's imperative to not let your guard down once you've navigated past delinquency.
Reversing the effects of delinquency involves adding positive usage information to dilute the signs of financial instability. Owning and responsibly managing a credit card can help with this. If you're still stuck navigating the world of credit after delinquency, secured credit cards can be particularly useful. The refundable deposit not only guarantees approval but eliminates chances of overspending, aligning perfectly with a path towards credit improvement.
Understanding how credit delinquency works and its damaging effects are instrumental in managing debt responsibly. The road to recovery and rebuilding your credit score takes time, discipline, and wise financial decisions. Make every payment count, learn to differentiate between the minimum and due amounts, and be patient. One day at a time and before you know it, you'll have regained your financial standing.