What is an Overdue Account Credit Card?
From the perspective of a credit card company, a particular credit card is deemed past due if the customer in question has not made their minimum monthly payment by the most recent due date.
Generally, credit card companies will start reaching out to the customer once their account is at least 30 days past due. If the account is still past due for 60 days or more, the credit card company will usually start the debt collection process. This process may involve legal action and the use of credit collection companies.
Key points to remember
- In the context of credit cards, overdue accounts are those that have resulted in missed or late payments.
- An account is generally considered overdue if the missed payment was made at least 30 days ago.
- Credit card companies will seek to manage the risk of overdue accounts by reporting default to credit reporting agencies, seeking to contact and negotiate with the borrower, and by using credit recovery services. internal or third parties.
Understanding Credit Cards in Overdue Accounts
One of the first steps taken by credit card companies when detecting an overdue account is to try to contact the account holder. If an agreement can be reached with the customer in a timely manner, the credit card company cannot take any other action. However, if an agreement cannot be reached, the business will likely start by reporting the overdue account to a credit reporting agency.
For this reason, overdue accounts can have a serious negative effect on a borrower’s credit rating, particularly if delinquency persists beyond the 60-day mark. Generally, the immediate impact of a default is a 25 to 50 point decrease in the borrower’s credit rating. However, further decreases may occur if the delinquency is not subsequently corrected.
One of the most difficult factors to overcome for borrowers looking to improve their credit score is overdue accounts, as they typically stay on the borrower’s credit report for three to five years. For some borrowers, this could mean moving from a very competitive credit score to something that is just acceptable, such as going from 740 points to 660. Depending on the conditions of the credit card in question, the borrower can also be faced with penalties if their account becomes overdue.
Most credit issuers maintain exclusive debt collection services for anticipated defaults. However, overdue credit card accounts that remain unpaid will eventually be sold to a third-party debt collector. These debt collectors are responsible for obtaining the original debt owed with interest and may initiate legal proceedings. Debt that is considered written off is also reported to credit bureaus and can have an even greater negative impact on a borrower’s credit rating than one-time defaults which are then corrected.
Real example of an overdue account credit card
Mark is a client of XYZ Financial, where he holds a credit card. He uses his card regularly and generally only pays the minimum payment required each month.
One month, however, Mark forgot to make his payment and was contacted 30 days later by XYZ. XYZ tells him that his account has become overdue and that he must quickly make up for the lost payment to avoid having a negative impact on his credit rating. Because the missed payment was involuntary, Mark apologizes for the oversight and quickly catches up with the lost payment.
If Mark had refused to make up for the lost payment, XYZ may have had to collect his debt. To do this, they would first have reported the delinquency to one or more credit reporting agencies. Then, either they would seek to collect the debt themselves, or they would rely on a third party debt collection service.