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Can't pay your debts? Why you should still care about your credit

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Credit Care
'Credit Care' columnist Kim McGrigg
Kim McGrigg is Community Manager for Money Management International, where she provides personal finance education information to consumers.

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Question for the CreditCards.com expert

Dear Credit Care,
What if I don't really care about taking care of my credit? I just can't pay the credit card balance I have on one card, and they seem less than eager to work with me. -- Barbara

Answer for the CreditCards.com expert

Dear Barbara,
I can hear your frustration, but before you totally stop caring about your credit, let's go over some reasons I believe that to be a bad idea.

First, a single 30-day late payment on your credit card account could drop your FICO credit score by anywhere from 60 to 110 points, depending on how high your credit score is before the late payment. For example, if you started with a FICO score of 780, the late payment could drop your score down to 670. But if your score was 680, it could lower it to 620. This may not mean much to you because you have decided you don't care about your credit rating, but others in your life may care a great deal about your lower credit score.

The obvious persons of interest would be potential lenders. However, other less obvious people judge you by your credit history as well. Your insurance companies may consider you a greater risk with the negative change in your credit, an

d they may increase your home and car insurance premiums when your policies renew. You may also find it more difficult to secure a lease for housing if your credit is not so good. Lastly, you might be passed over for a new job or promotion if you have less-than-stellar credit.

But that's not all. If you stop paying on the account, your card issuer will contact you -- sometimes frequently -- in an attempt to get you to pay. And once you're 90 to 120 days late with the payment, you'll be considered to be in default. At that point, the card issuer will likely charge off the balance owed and sell or move the debt to collections. That's when you can expect the collection activity to heat up. Depending on how much you owe on the account, the collection company may sue you to collect what is owed. Since the debt is yours and is valid, the collector would most likely win in court and be granted a judgment. With a judgment, the collector could petition the court for an order to garnish your wages or levy your bank account, depending on the laws that apply in your state.

My recommendation is that you contact your card issuer again to see if you can qualify for a hardship program or other payment relief. If you still don't have any luck, consider contacting a qualified nonprofit credit counseling agency through the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. If, after reviewing your financial situation with you, your credit counselor believes a debt management plan may be in your best interest, you should receive the help you need to pay off your credit card balance.

Handle your credit with care!

See related: 10 things you must know about credit reports, FICO 5: the basic elements of a credit score

Kim McGrigg is the community manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Credit Care.

Published: August 8, 2011


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