The delinquency rate for credit cards rose to 2.74% from 2.48% for the third quarter of 2016, according to a Jan. 10 bulletin released by the American Bankers Association. A similar trend was found in TransUnion’s Industry Insights Report for Q3 2016, with the credit card delinquency rate at 1.53%, up from 1.44% for Q3 2015. Both data sets do note that the delinquency rate remains at historic low levels.
As you may be well aware, owning a credit card comes with a freedom to use it and a responsibility to repay your dues. As you will read on, you’ll realize that it’s pretty easy to slip into credit card delinquency but harder to get out. There’s also the long road to recovery as it pertains to your credit standing and reputation.
How do you get into credit card delinquency?
When you miss a single payment on your credit card, you are considered delinquent. But this missed payment does not automatically appear on your credit report. Credit bureaus usually wait at least 30 days after the missed due date to report and in some cases, until two consecutive payments have been missed.
The delinquency is classified according to the number of days past the due date, e.g. one-day delinquency, 30-day, 60-day, 90-day, 120-day, etc. The longer this delinquency, the greater its impact on your credit.
Credit scores and collections
Credit card delinquency is a negative mark on your credit report that will remain for as long as seven years. “Further, the more payments you miss, the longer the recovery,” according to Experian.
If you miss three payments on your credit card, your credit score could lose as much as 125 points. If the number of missed payments reaches four, the impact on your credit score is even greater and your account could be turned over to collections.
Collections accounts are those sold to a third-party collection agency or turned over to an internal collections department. Either way, your account on collections will be reflected on your credit report.
Credit card provider actions
Your credit card provider can temporarily suspend the use of your credit card or permanently revoke it. A simple late payment results in your lender slapping you with a late fee and an increased interest rate.
And if you keep missing your payments, a drop in your credit score and a bad mark on your credit report as noted above.
Getting Out of It
The bit about late payment charges and rates is one motivation for you to regularly make your credit card payments in the course of normal life.
When in delinquency, you can make a minimum payment to at least mitigate the situation. Two minimum payments are helpful if you are 90-days late and want to bring your account to 60 days. But if you make multiple minimum payments enough to pay off your total amount due, your account will be restored to “current” status.
Even when you got out of credit card delinquency, your credit report will still reflect that mistake. You can make it up with a good payment behavior and history across all your debt accounts, your credit cards especially.
Use your existing credit cards wisely, making fewer purchases and paying them off on time and every month. Other experts also suggest opening a new credit card and keeping the balance at $0 for credit reporting purposes.
Another way to build your credit is through a subprime credit card. It can be taken with a deposit, thus called a secured credit card, that acts as an effective credit limit.
Experian notes that the more recent the delinquency, the greater its impact will be. That is, if you have a 30-day delinquency in the past it won’t matter as much as the one you have just incurred.
The road to recovery may be long but being a responsible credit card holder will go a long way.