What to Do If You Miss a Credit Card Payment

One of the reasons why I wanted to do a post about this because there's a lot of misinformation out there about what to do when you miss a payment. 

If you do miss a payment, you typically get a notification. The first thing you should do is log in to your account and make a minimum payment. Most banks don't report a missed payment until 30 days later.

For example, if the min payment was $25 by Aug 20, and I wait 30 days to pay it, that will be reported as a missed payment on your credit report.

As long as you pay off the bill, you'll be in a good position and not have to worry about it. Even if you make the payment online, you should still call in because they might waive the missed payment fees. Banks usually allocate $100 in waived fees for each client. 

What happens If 30 days go by and you still don't pay the statement? In this case, the strategy is still the same, but you'll have a missed payment on your credit report. If this happens, I recommend aggressively cutting back on your budget so you can pay your bills. 

Easy expenses to cut are alcohol, dining out, and entertainment. Expenses you can't downgrade are mortgage payments, phone bills, and the internet. I 'm biased because I need wifi to survive (it's my job!). The strategy is cutting out any unnecessary expenses. 

What are things you shouldn't do?

The first piece of bad advice is to contest the late payment and say that it was fraudulent. The idea here is you can go to the credit agencies and say the charge shouldn't be there. It's kind of like doing a chargeback when you shouldn't in the first place. 

The second bad piece of advice is to just default on the payment. Basically, forget that it exists and ignore anything related to the charges. The reason why this is a terrible choice is that this decision will affect you for the next 7-10 years. By defaulting on payments, you're destroying your relationship with the respective bank and destroying your credit report. 

For example, if you defaulted on $10,000, the respective bank will no longer work with you because of the bad history. If you tried to apply for a credit card with them, you're likely to be automatically denied due to a non-satisfactory previous relationship. 

If you do want to rebuild a relationship with the bank in the future, you would have to pay them what they lost (the defaulted amount).

The final piece of bad advice I hear is that you should pay off your debt in full, and then cancel all your credit cards. I understand the idea behind this, but it will harm your credit history. The main problem with this is that if you have a missed payment, it has a high impact on your credit score. Your payment history is based on total on time payments / total payments. 

100% = Excellent
99% = Good
98% = Fair
97% = Poor
< 97% = Very Poor

The main issue of closing your account is you're not going to have any more payments moving forward. If you keep the card and you put a small amount ($5) on it each month, you can help improve your payment history. 

Optimal Strategy

Given this, the optimal strategy, and this is counterintuitive, is to apply for another card (only if you can pay off your cards on time and in full). The benefit here is instead of the payment history being 12+12, it's going to be 24+24 because you have an additional card.

This means that your payment history, after one year, goes to 33 on time payments out of 34 = 97.1%. You might be thinking it doesn't seem that material, but it's a step in the right direction. 

Another thing to consider is that the credit cards you're going to be approved for will be slim. Try to avoid cards that charge you an annual fee and no benefits. If this happens to you, there are still entry-level cards that you may be eligible for.

If your score is low, try to get a secured card. The secured cards typically cost $100-$500, but it's a deposit and not a fee. The benefit of a secured card is they usually get graduated to a regular credit card after one year, and they offer more benefits than a subprime card. 

The whole idea is to take two steps back now and take three steps forward in the future. Subprime cards are the opposite. Yes, you do get a credit card, but in the long-term, it will drown you in fees without getting benefits.