If you’re struggling to make your minimum credit card payments, you’re not alone. Unexpected emergencies can sometimes leave us short on funds to make the minimum payment on a credit card. According to Equifax Canada’s 2023 Market Pulse Consumer Credit Trends and Insights report, nearly 35% of Canadians carry balances on their credit cards from month to month. However, there are potential consequences for not paying your credit card bill on time. So here are the steps you can take to minimize the impact.
Note that credit card companies may respond differently to missed payments, ranging from a tersely worded letter to potential legal action, depending on your issuer and your situation. In this article, we’ll explore the implications and ways to manage your credit card debt.
What are the immediate consequences of not paying a credit card bill?
If you don’t pay your minimum credit card balance, there could be different outcomes depending on the type of credit card you carry and the credit card issuer. Missing a couple payments will usually result in a hit to your credit score, as well as penalty fees like late charges and potentially a higher interest rate. If you miss more than one payment, the credit card company may also close your card.
Review your credit card agreement to ensure you are aware of your obligations and any potential penalties. If you miss payments, the credit card company may do any or all three of the following, according to the Canadian government:
- Revoke promotional interest rates.
- Increase interest rates in general.
- Cancel the credit card.
Will my credit score be impacted if I don’t pay?
Payment history is the biggest factor in calculating your credit score, so a late or missed payment can definitely impact it. Your credit score indicates creditworthiness for lenders, meaning it influences the loans you may qualify for, the interest rate you’ll pay, what you can buy on credit, and maybe even where you work and where you live.
Typically, one missed payment won’t end up on your credit report for at least 30 days after the payment due date. If you make the payment before that point, you might incur penalty fees, but your credit score likely won’t suffer. However, if you don’t pay your credit card for longer than that, your credit will take a hit and hinder your ability to qualify for certain financial services in the future.
Interest increases and penalty fees on missed card payments
Depending on the terms and conditions of your credit card, you may have to pay a late fee if you miss a payment. Penalty fees can depend on your balance and what’s outlined in the credit card agreement.
In addition, you might face a penalty annual percentage rate (APR) if you miss payments by at least 60 days, resulting in a higher interest rate being applied for a period of time. And that can grow your debt even higher. These terms differ depending on the credit card issuer.
