Credit Card Default: What To Do About It

You’ve missed several credit card payments, the balance keeps growing and you’re afraid your account is in danger. What comes next? If you don’t make a payment for an extended period of time, your credit card could default, meaning the issuer will close your account and possibly sell it to collections. 

Not only can a credit card default damage your credit score, but it can also lead to legal action against you as your creditor seeks repayment for your debt. We’ll run through how a credit card default occurs, what happens once it does and what you can do to regain control.

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Key Takeaways

• Credit card default usually happens after about 180 days of missed payments: At that point, the issuer treats the unpaid balance as a loss, typically closes your account and may sell the debt to a collection agency.

• It's more serious than delinquency — and the timeline is gradual: Your account is delinquent after one missed payment and reported to the bureaus at 30 days, but default doesn't happen overnight.

• Default can lead to legal action: If the creditor or collection agency can't recover the debt, it may sue you — and if it wins, it could garnish your wages or levy your bank account.

• The credit damage is severe and lasting: Payment history is the biggest scoring factor, a closed account can raise your credit utilization, and a default can stay on your credit report for up to seven years.

• Reaching out early is your best move: If you haven't defaulted yet, contact your issuer about forbearance, a payment plan or temporary interest relief — default often happens when the company doesn't hear back from you.

• Be careful after default: Verify any collection debt is yours, avoid partial payments that can restart the statute of limitations in some states, and get any settlement in writing.

Summary generated by AI, verified by MoneyLion editors

What Credit Card Default Means 

Credit card default occurs when the required minimum payments go unpaid, usually for about 180 days. At this point, your credit card issuer will have contacted you about your lack of payment, and if you haven’t responded, it may treat your lack of payment as a loss and close your account.

That doesn’t mean the creditor will just accept the loss, though; it may sell your credit card debt to a collection agency, in which case a third party will take up the attempts to get you to make payment.

Defaulting on a credit card is more serious than credit card delinquency, which involves falling behind on payments for a shorter period. In addition to opening you up to potential legal action, a credit card default can damage your credit score and lead to lasting negative marks on your credit report.

How Credit Card Default Happens 

What happens if you stop paying your credit cards? Your account will be considered delinquent after missing one payment, but credit card default doesn’t happen overnight. Here’s an example of how this could play out.

1. A borrower misses a credit card payment, and their account becomes delinquent.

2. At 30 days, it’s reported to the credit bureaus.

3. Six months (180 days) pass without the borrower making at least the minimum payment on their credit card, leading the issuer to put the account in default.

4. The account is now closed, and the creditor can sell the borrower’s debt to a collection agency.

What Happens After a Credit Card Default 

The most immediate result of a credit card default is usually the card issuer closing your account. In this case, you’ll no longer be able to make charges to your card.

From here, the credit card company may charge off your debt. A credit card charge-off occurs when the creditor writes off your unpaid balance as a loss. But this doesn’t mean they stop trying to recover the money you owe. Instead, your debt is generally transferred to a collection agency, which will take over the effort of contacting you to request repayment. 

If your creditor or the collection agency isn’t able to recoup the debt you owe, they may decide to take legal action against you. If they sue you and win, they could garnish your wages or levy your bank account or other assets to make up for the money you owe.

How Credit Card Default Hurts Your Credit 

There’s a clear correlation between credit card default and credit score. Payment history is the biggest factor that affects your credit score, so falling behind on credit card payments can damage your credit even before you get to the default stage. Once you’re 30 days late on a payment, your score will take a hit, and it compounds with each additional month of nonpayment.

Once a credit card account defaults and is charged off, the damage to your credit becomes more severe. For one, you’ll have less total credit available with the account closed, which will push up your credit utilization rate, the second-largest factor in determining your score. 

Beyond that, a credit card default can stay on your credit report for up to seven years. This negative mark could affect your ability to obtain new lines of credit or even secure a rental that requires a credit check.

What To Do if You Have Not Defaulted Yet 

If you haven’t defaulted yet but you think you won’t be able to make your next payments, contact your issuer as soon as possible. Let them know you won't be able to pay your balance, and ask about options they can offer. 

Many issuers offer forbearance (sometimes called hardship programs), with assistance in creating a payment plan that works for your situation while preserving your credit. The credit card company may also be able to offer temporary interest relief.

The earlier you reach out, the better, since credit card default often happens when the company doesn’t hear back from you.

What To Do if You Have Already Defaulted 

If you’ve already defaulted on your credit card, don’t ignore the charged-off credit card debt or any legal actions that your credit card company initiates against you. The longer you wait to take action, the worse the impact on your credit score. 

You’ll likely be contacted by a collection agency, and you should verify that they can prove the debt is yours before attempting to repay it. If you’re able to repay your debt, you should do so. However, be careful about making partial payments because, in some states, this resets the statute of limitations on how long a creditor can sue for repayment. 

If you’re not able to repay your debt, you could consider negotiating a debt settlement for a reduced amount either directly or with the help of a debt relief company. If you reach a settlement, make sure to get an agreement in writing.

It could be worth consulting a legal or financial professional for advice on the best course of action. Nonprofit credit counseling could also be worthwhile if you want the structure of a debt management plan and advice on how to get out of credit card debt.

When Bankruptcy May Enter the Picture 

You might be considering filing for bankruptcy if you’re staring down credit card debt that you don’t think you’ll be able to repay after a default, but this should be considered a last-resort option. 

When you file for bankruptcy, an automatic stay is put on your debt and creditors can’t pursue repayment until your case is resolved. While this can offer some real relief, especially if your debts have become overwhelming, a bankruptcy filing can stay on your credit report for as long as 10 years, so it’s not a decision you should take lightly. 

How To Recover After a Credit Card Default 

Recovering from a credit card default takes time, but it’s definitely possible, especially if you have a structured plan. If you’re wondering what to do after a credit card default, the best thing you can do for your credit score is to pay your bills on time and work to lower your overall credit utilization level. 

Consider working with a credit counseling service if you need help building a plan and a budget to get back on track and avoid defaulting on a credit card in the future. 

Bottom Line 

Credit card default should not be taken lightly, but it’s not the end of the road if you get to this point. Your best course of action is to get ahead of a default by contacting your credit card issuer, ideally even before your account goes into delinquency. 

Even after your account has been charged off, action still matters, and you may be able to negotiate a settlement with the collection agency. When in doubt, seek financial and legal advice or contact a credit counselor for help on your best course of action.

Credit Card Default FAQs 

What is credit card default? 

Credit card default occurs when an account remains unpaid for an extended period, often 180 days. At this point, the credit card issuer will often charge off your account and transfer it to a collection agency.

When does a credit card go into default? 

A credit card goes into default after it hasn’t been paid for a long period of time, usually about 180 days. The account will first be considered delinquent after missing a payment.

Can you recover from a credit card default? 

You can recover from a credit card default, but it may take time to repair your credit and develop a debt management strategy. The best course of action is to proactively contact your credit card issuer to discuss solutions.

Key Terms

• Credit card default: What happens when required minimum payments go unpaid for an extended period, usually about 180 days, leading the issuer to close the account and treat the balance as a loss.

• Delinquency: A shorter-term status that begins after a single missed payment. It's less severe than default but is reported to the credit bureaus at 30 days.

• Charge-off: When a creditor writes off your unpaid balance as a loss. You still owe the debt, which is generally transferred to a collection agency.

• Collection agency: A third party that takes over efforts to collect your debt after a charge-off or sale, contacting you to request repayment.

• Credit utilization rate: The share of your available credit you're using, and the second-largest scoring factor. A closed, defaulted account reduces your available credit and increases your utilization.

• Statute of limitations: The state time limit on how long a creditor can sue you for a debt. Making a partial payment can reset this clock in some states.

• Forbearance (hardship program): Issuer relief — such as a payment plan or temporary interest reduction — that can help you avoid default if you reach out before falling too far behind.

• Bankruptcy: A last-resort legal option that triggers an automatic stay halting collection, but it can stay on your credit report for as long as 10 years.

Sources

• CFPB: Can debt collectors collect a debt that's several years old? 

• CFPB: How long does information stay on my credit report? 

• CFPB: How long does a bankruptcy appear on credit reports? 

• National Consumer Law Center: Charge-Off 

Summary generated by AI, verified by MoneyLion editors

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