Credit cards permit users to make transactions or purchases on credit. This means that users can spend through their credit cards now and pay for it later. Credit card issuing companies or banks pay for the transactions for that time. And you must repay the amount that you have spent on a later date. Suppose you transacted through your Axis Bank credit card on 24th Jan, and the Axis Bank credit card statement generation date is 21st February, and your due date is 2nd March. Thus, you must ensure to repay your full Axis Bank due by 2nd March to avoid a fall in credit score. Ensure to also timely check your credit score through lending institutions to confirm you have a good credit score.
In case you miss repaying the spent amount on time, which comes to you as your outstanding bill, you automatically become a defaulter. Credit card users become credit card defaulters when they miss repaying their card dues within the due date. It is crucial to remember that credit card users must pay at least the minimum amount due. In case the payment is not made in six months, card users are termed as defaulters, and their account is instantly deactivated.
Note that even if you become a defaulter, there still is some hope. To get back to normal, you must face the consequences of being a defaulter and follow certain practices to ameliorate your score. Here, in this blog, go through the detailed guide regarding all this. So, continue reading!
Crucial reasons that make you a defaulter
When you avail of a credit card, you sign up for different terms and conditions as suggested in the official joining document of the credit card issuer. One of the conditions states that you must pay all your credit card dues on time, as mentioned on the card statement. In case you fail to do this, your bank sends you a warning notice for six months daily. However, in case you still do not act on clearing your outstanding dues, your creditor may deactivate your account and report it to the credit bureau. This will hamper your credit score negatively. Hence, avoid witnessing such situations. For this, you must be aware of the reasons that might make you a defaulter-
Overspending – There might be times when you spend an excessive amount considering your credit card limit. However, you may not be able to repay the due even when you receive your monthly salary. Hence, it is recommended you just spend 60 percent of your credit card limit to be able to repay the outstanding amount later.
Postal delay – If you have not opted for the online receipt of your card bills, then your bank will send your bills to your residential address. In these cases, there is an extremely high chance that your bill might be misplaced or delayed. This would ultimately result in late credit card payments. Thus, it is crucial to turn your online notification and continue with your regular check on your mail for your card overdue.
Procrastination – Many people tend to wait until the last moment to repay their credit card dues. While it makes zero difference if you repay before your repayment date, it is a great idea to make your repayments in advance. Doing so will assist you in staying away from the risk of missing your bill payment and leaves zero chance of becoming liable to pay the hefty interest fees for the late credit card payment.
Missed due date – Even though it is extremely less likely to take place, there might be instances where you will not be confused with the due date and eventually miss the credit card bill payment. Hence, it is recommended that as and when you get the monthly statement, ensure to take an in-depth look at your payment due date and billing date and accordingly set reminders.
What happens if you become a defaulter?
Any of the above-mentioned reasons may make you witness the consequences of a defaulter, even if you didn’t intend to do so. Hence, ensure to be aware of the consequences that you may have to face if you become a defaulter, so ensure to be aware of the bills in advance.
∙ Negative impact on your credit score – Having a missed payment or making late credit card repayments result in a lower credit score. This cancels out the massive benefit offered by credit cards. Your credit score can easily be improved by effective and prudent credit card usage and timely bill repayments. It is crucial to have an excellent credit score to ensure you are eligible for instant loan approval. Missing out on your bills eventually hampers your financial stability.
∙ Blocked credit card account – Failing to repay your credit card dues for a maximum of six months makes you a defaulter. You may also be blacklisted from the financial institution, which in turn may result in credit card deactivation.
∙ Legal implications – Not repaying your credit card dues for an extremely long time indicate you as a fraud. As an outcome, banks may take legal action, which may make it tough for you to take a credit card from them in the future.
∙ High rate of interest: On nonpayment of your credit card dues by over sixty days, credit card companies levy rates of interest as high as 30 percent of the card overdue. This high rate of interest is even applied to new purchases that you would make using your card. If you continue doing so, in nearly no time, your credit card bill interest would be over your actual card bill.
∙ Interest on the outstanding balances: In contrast to what most card users think, you are certainly not liable to repay just the minimum due amount of the overall credit card due before time. Even though it is believed that repaying just the minimum amount balance will not make you liable for finance charge payment, it is untrue. You must pay an outstanding amount beginning from your due date. Thus, it is strictly recommended for you to repay your card overdue in totality.
∙ Asset acquisition: In case you fail to make the repayment of the pending dues on time, financial institutions have the right to use your funds in your savings or other bank accounts to clear off your outstanding dues. In the worst-case scenario, banks might also seize your assets and other properties to settle your dues.