Dear Credit Guy,

What happens if I have four credit cards and don't pay just one of them? I will pay all three on time and just not pay one. Will not paying on the one affect my other three cards? Will my credit score get very bad? Or because I pay the other three I'm still OK? If the collection company calls me, and we agree that I pay 50% to settle the account will the bank still report me? Will my credit go bad even though I pay 50% of what I owe? Thank you. 

-Dan

Dear Dan,

Fortunately,the CARD Act prevents your creditors from raising your interest rate because you are late on payments with other accounts (known as universal default, this practice is no longer allowed). So, as long as you make payments on time and as agreed with your other three credit card accounts, those accounts should not be negatively affected if you stop paying the fourth account.

However,any time you stop paying on a credit account, your credit history will be negatively affected. Your FICO credit score calculates payment history as 35% of your score and the Vantage Score folks calculate payment history as 28% of your score. Each month that you do not make a payment on your account, your credit score will decrease. When the original creditor charges off the account (typically when the account has not been paid for more than 180 days) and you add a collections account to the mix, your credit score will decrease yet again.

Beforeyou stop paying on your fourth account, I encourage you to contact a nonprofit credit counseling agency and speak with a certified credit counselor. Your counselor will review your financial situation and help you determine the best way to move forward. It could be that you have enough income to pay all four accounts if you make needed adjustments to your monthly spending. Or, you might benefit from a debt management plan, where you may receive lower interest rates and a monthly payment amount where you could afford to pay all four credit card accounts. You can find a reputable nonprofit agency by visiting the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.

The bottom line is that you would do significant damage to your credit by not paying one of your credit card accounts. Also, if you owe a large amount on the account, it is likely that the creditor will sue in court to collect what they are owed. As long as the debt is legitimately owed by you, the court is likely to award the creditor a judgment for the amount owed. With a judgment, the creditor can request that the court grant wage garnishment, a levy for your bank account or a lien on any real property that you own.

Settling the account with the creditor is a potential option, but make sure you do the negotiations yourself rather than working through or hiring a debt settlement company. Also, make sure you receive the settlement agreement in writing before you make the payment. A settlement on your credit will also have a significant negative effect on your credit score and may make it difficult to obtain new credit at favorable terms.

Take care of your credit!

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