Credit Card Delinquency: Rates and How It Works

Our credit cards have made lives incredibly easier. However, despite the multiple use cases and the many benefits that they offer, what happens when a credit card holder is unable to pay their credit card bill?

The term that you are looking for is known as credit card delinquency. It happens when a credit card holder is unable to pay the minimum amount payable on their credit card statement. Now, credit card delinquency is never a good path to go down, because your credit score gets affected negatively, your relationship with the bank may be affected and a lot more.

In this blog, we will take you through the steps on how credit card delinquency matters, how to avoid something like this and what are the consequences of credit card delinquencies. 

What is Credit Card Delinquency?

Credit card delinquency happens when a credit card holder is unable to pay the minimum amount payable on their credit card statement. In simpler terms, it is a situation where the borrower defaults on their credited amount and has no way to pay it back. There are multiple reasons why something like this can happen, such as financial problems, overspending and more.

Recommended: What Are The Advantages and Disadvantages Of a Credit Card?

Rates and Penalties On Credit Card Delinquency

Credit card delinquency is never encouraged, which is why credit card lenders usually charge penalties if such a case arises. These penalties consist of late fees or a fixed amount of the outstanding balance. The rates and penalties on credit card delinquencies can vary from one credit card issuing bank to another. 

Credit Cards for Delinquent Credit

For individuals with a history of credit card delinquency, obtaining new credit cards can be challenging. However, some credit card issuers offer products specifically tailored for individuals with poor credit histories. These cards, often known as secured credit cards or subprime credit cards, typically come with higher interest rates, lower credit limits, and may require a security deposit. While they can help individuals rebuild their credit, they also come with risks and may perpetuate a cycle of debt if not used responsibly.

How Does It Work?

The process of credit card delinquency unfolds when a cardholder misses a payment deadline. Initially, the credit card issuer may send reminders or notifications to prompt payment. However, if the payment remains outstanding, the account becomes delinquent. 

At this stage, the issuer may escalate collection efforts, such as contacting the cardholder directly or engaging third-party collection agencies. Furthermore, the delinquency is reported to credit bureaus, impacting the cardholder’s credit score and overall creditworthiness.

Also Read: Factors That Affect Your Credit Score

How To Manage Credit Card Delinquency?

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Preventing credit card delinquency requires proactive financial management. Setting up automatic payments or reminders can help ensure payments are made promptly, reducing the likelihood of delinquency. 

Moreover, maintaining a budget and living within one’s means can prevent overspending and financial strain. In financial difficulty, communicating with the credit card issuer to explore payment options or seeking assistance from a financial counselor can provide support and guidance.

Always remember that your credit card is nothing but an extra line of credit that you will always have to pay back, no matter what. Moreover, also remember that some banks may not be as relaxed in the case of a credit card delinquency and may end up increasing the financial burden on you by stating late payments, etc. It is in everyone’s best interest if you try to avoid a credit card delinquency at all costs.

Conclusion

Since credit card delinquency can pose a difficult situation for any credit card holder, it is always advised that you pay your credit card bills in full. If not possible, only then can you think about paying the minimum amount payable for the credit card.

Remember that although the credit card gives you an easy line of credit, the management of your finances responsibly falls on you. Use the credit card only where necessary and always ensure that you only purchase what you can pay back.

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