Credit Cards for Defaulters: Everything You Should Know

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How Credit Card Default Happens?

Whenever you accept a credit card, you agree to certain terms and conditions including making your minimum payment by the due date listed on your credit card statement.

When you miss the minimum payment by 6 months or more in a row, your credit card will be in default. In such situations, your credit card issuer will first send several notices via email or SMS and call you asking to make the payment. If you do not make the payment after a stipulated period, they will close your account and report the default to the credit bureaus.

This period may vary from one credit card provider to another. This tends to impact your credit score and it will be difficult for you to get approved for loans in the future. Once you are listed as a credit card defaulter, you become a risk for any credit obligation.

Here’s the Deal

You will have to bear the consequences of defaulting on your credit card bill. However, all is not lost; you can still bounce back and work on improving your credit score. Click here to know how to deal with credit card default.

Consequences of Credit Card Default

The many consequences of a credit card default are listed below-

1. Credit Score will be Impacted

Your credit score will be affected if your payments are defaulted. This is because credit rating agencies regularly receive reports about your payment history.

Suggest Read: How Credit Cards Affect Your Credit Score?

2. You may be Blacklisted

Banks and credit card companies tend to blacklist people who fail to make payments towards their credit cards.

3. Your Credit Card will be Blocked

The bank will block your credit card in order to prevent any further transactions from the card. You will not be able to swipe the card for making any purchases. Until all the dues are settled and the bank is convinced, the card cannot be used again.

4. Legal Action can be taken

Legal action can be taken in case of credit card payment default. This can be made into a civil dispute and the case can be filed in the court of law.

5. Access to credit will become difficult

Since your name will be blacklisted, it will be difficult for you to get approved for loans or any type of credit in the future.

6. High-Interest Rates

If you have repeatedly missed your payment due dates, the credit card interest rates will be significantly higher.

7. Assets Acquisition

This is the worst possible scenario and happens only at the last stage. If the bank has access to your savings bank account or other accounts, funds can be used towards the outstanding bills. Apart from this, some banks may also seize properties owned by you to settle the dues.

8. Recovery agents may approach you

Usually, banks tend to give some leverage and time to pay the bill. This can extend anywhere between 60-90 days depending from bank to bank. If no payments are made even after this period, the case will be forwarded to the bank’s recovery house. Recovery agents will then approach you and ask to settle the bills at the earliest.

What happens if you don't pay credit card bills?

Number of Missed Credit Card Payments	Consequences
1-2	Late fee Penalty APR Loss of introductory APR Negative impact on credit score
3	Late fee More damage to credit score Closed credit card account
More than 3	Late fee Substantial damage to credit score Debt sold to collection agency Lawsuit

Ways to Deal with Credit Card Default

Below listed are some of the ways to deal with credit card default-

Options for Dealing With Credit Card Default
Pay the account in full- This is the easiest and the recommended way to save yourself from credit card default. Pay all your dues and your credit score will also gradually recover. File for bankruptcy- Depending on the extent of the default and any other debts you are holding, you can consider filing bankruptcy to either restructure your debt and make it more affordable or to have it discharged. Credit Card Balance Transfer- You can transfer your balance to the account of another bank and pay through EMIs Take a Personal Loan- You can also take a personal loan to pay off your debts. The loans come at lower interest rates than the interest charged on the credit cards Convert the due amount into EMIs- Request the bank to convert the due amount into EMIs, which you can pay over a limited period of time

Options for Dealing With Credit Card Default

Pay the account in full- This is the easiest and the recommended way to save yourself from credit card default. Pay all your dues and your credit score will also gradually recover.
File for bankruptcy- Depending on the extent of the default and any other debts you are holding, you can consider filing bankruptcy to either restructure your debt and make it more affordable or to have it discharged.
Credit Card Balance Transfer- You can transfer your balance to the account of another bank and pay through EMIs
Take a Personal Loan- You can also take a personal loan to pay off your debts. The loans come at lower interest rates than the interest charged on the credit cards
Convert the due amount into EMIs- Request the bank to convert the due amount into EMIs, which you can pay over a limited period of time

What Next

Once, you have repaid your credit card bills; you still have to work on improving your Credit Score.

Improper credit usage must have destroyed your Credit Score. You must absolutely work upon improving your credit score as it will affect your future loan approval chances and interest offered.

Recovery not only involves the knowledge of your current credit score but also its timely review. This will let you know whether the steps you have taken are working or not.

FAQs

What happens if I never pay a credit card?

If you don’t pay your credit card bill, you will have to pay late fees, increased interest charges and it can cause damage to your credit score. If you continue to miss payments, your card can be frozen, your debt could be sold to a collection agency and the collector of your debt could also sue you.

Can I go to jail for not paying credit cards in India?

Legal action can be taken in the court of law for credit card payment default and a civil suit can be filed. Your name will also be a part of the credit card defaulter list in India.

What is the punishment for credit card defaulters in India?

You will be charged a penalty for late payments. Even with a single day delay, you will have to pay interest on the outstanding amount along with a penalty for late payment. These annual interest rates (also known as APR) on credit cards may range between 30% and 45%.

How often do credit card companies sue for non payment?

Credit card companies sue for non-payment in about 15% of collection cases. Usually debt holders only have to worry about lawsuits if their accounts become 180-days past due and charge off, or default. That’s when a credit card company writes off a debt, counting it as a loss for accounting purposes.

Do credit card companies ever forgive debts?

Credit card companies rarely forgive your entire debt, but you might be able to settle the debt for less and get a portion forgiven.

What does credit card blacklisted mean?

Cards that were used or that are suspect of have been used in fraudulent transactions are compiled in a database and after having been blacklisted, they will always be subject to rejection by the system. The purpose of blacklisting is to prevent fraud and losses for the banks.