Neglecting one credit card bill can ruin your credit
A reader only wants to pay three of his four credit card bills
By Todd Ossenfort
The Credit Guy
Dear Credit Guy,
happens if I have four credit cards and don't pay just one of them? I will pay
all three on time and just not pay one. Will not paying on the one affect my
other three cards? Will my credit score get very bad? Or because I pay the other
three I'm still OK? If the collection company calls me, and we agree that I pay
50 percent to settle the account will the bank still report me? Will my credit
go bad even though I pay 50 percent of what I owe? Thank you.
the CARD Act prevents your creditors from raising your interest rate because
you are late on payments with other accounts (known as universal default, this
practice is no longer allowed). So, as long as you make payments on time and as
agreed with your other three credit card accounts, those accounts should not be
negatively affected if you stop paying the fourth account.
any time you stop paying on a credit account, your credit history will be
negatively affected. Your FICO credit score calculates payment history as 35
percent of your score and the Vantage Score folks calculate payment history as
28 percent of your score. Each month that you do not make a payment on your
account, your credit score will decrease. When the original creditor charges off the
account (typically when the account has not been paid for more than 180 days) and you add a collections account to the mix, your credit score will
decrease yet again.
you stop paying on your fourth account, I encourage you to contact a nonprofit credit counseling agency and speak with a certified credit counselor. Your
counselor will review your financial situation and help you determine the best
way to move forward. It could be that you have enough income to pay all four
accounts if you make needed adjustments to your monthly spending. Or, you might
benefit from a debt management plan, where you may receive lower interest rates
and a monthly payment amount where you could afford to pay all four credit card
accounts. You can find a reputable nonprofit agency by visiting the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.
bottom line is that you would do significant damage to your credit by not
paying one of your credit card accounts. Also, if you owe a large amount on the
account, it is likely that the creditor will sue in court to collect what they
are owed. As long as the debt is legitimately owed by you, the court is likely
to award the creditor a judgment for the amount owed. With a judgment, the
creditor can request that the court grant wage garnishment, a levy for your
bank account or a lien on any real property that you own.
the account with the creditor is a potential option, but make sure you do the
negotiations yourself rather than working through or hiring a debt settlement
company. Also, make sure you receive the settlement agreement in writing before
you make the payment. A settlement on your credit will also have a significant negative effect on your credit score and may make it difficult to obtain new credit at
care of your credit!
See related: Take these steps to avoid wage garnishment,
8 steps to picking a credit counselor, The pros and cons of debt management plans
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
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Published: February 28, 2011
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