What Happens If You Default on a Credit Card? 

Defaulting on a credit card happens if the credit card issuer decides to close your account due to missed payments.

Before default, the credit cardholder passes through a “delinquency” stage. That typically happens after you miss a credit card payment for 30 days.¹ During the delinquency stage, those missed payments may be reported to the three major credit reporting bureaus: Equifax^®, Experian^®, and TransUnion^®. This could negatively impact your credit score.

Default will typically happen after you’ve fallen behind by 180 days of not making at least the card’s minimum payment.² During that time you will have been contacted by your credit card issuer, and they will want to know your plan of action. If they are not satisfied with your response (or the lack thereof), the account may be closed. The debt may also be sold to collections. The account may be reported as charged off to the credit bureaus, and this is something that could stay on your credit report for up to seven years.³

The most obvious way to avoid default is to pay your outstanding balance. If that’s impossible, contact the credit card issuer and see what your options are. Your credit card issuer may be willing to work with you if you’re experiencing economic hardship. 

There are a few different implications that can arise from defaulting on a credit card. Your actions will also impact the severity of the damage to your personal finances. Here are two things that could happen when you default on a credit card:

• Damage to Credit Score
  Defaulting on a credit card can significantly lower your credit score, making it harder to qualify for future credit and loans. That starts when you reach the “delinquency” stage and typically worsens when you default on a credit card. The impact is long-term because a default stays on your credit report for up to seven years, and this is likely to have a negative impact on your credit.⁴
  
• Legal Action
  Creditors may pursue legal action to recover unpaid debts. This can be avoided by negotiating a settlement before the credit card goes into default. If you end up having legal action taken against you, it’s important to respond to the lawsuit. It’s also advisable to consult with an attorney.⁵

Credit card defaults happen for any number of reasons. One example would be a job loss, which resulted in mounting bills including credit card debt. Regardless of why the credit card default has happened, what you do next is important. Here are the steps you should take, ideally, as early in the process as possible:

• Speak to Your Credit Card Issuer
  Open communication and transparency can help in managing a delinquent or defaulted account. Be proactive. Call the credit card issuer or debt collection agency and let them know why you’re in this situation. Ask them what your options are and see if they are willing to work with you to come up with a solution.
  
• Pay in Full
  The best way to handle a credit card default is to pay off the balance in full as quickly as possible. The default will stay on your credit report, but the status of the accounts will change to “paid.”
  
• Debt Settlement
  You may be able to settle the debt before it reaches the delinquency stage. If not, many collection agencies will take less than you owe if you make them a reasonable offer. Debt settlement will stop the collection calls and legal action.
  
• Debt Management
  Debt management involves budgeting, negotiating lower payments, and financial planning. Look for a credit counselor who can help you plan to repay your debt and negotiate settlements with your creditors if appropriate. The National Foundation of Credit Counselors (NFCC) has a list of non-profit counselors who can help you.⁶
  
• Bankruptcy
  Bankruptcy may be an option to discharge credit card debt, but it carries long-term consequences. You don’t need an attorney to file bankruptcy, but it’s best to consult with one to make sure you’re aware of the implications and to ensure you’re doing it correctly.