Credit cards can be either incredibly useful tools or dangerous weapons. Without sound money management skills, it’s easy to end up over your head financially. The way you manage your credit cards today impacts the credit you’ll qualify for in the future. Credit card companies report every payment that you make, or don’t make, to the credit bureaus.

If you don’t manage your debt wisely, an unpaid credit card can damage your credit via late payments and collection accounts.Should your creditor take legal action, you could even end up with a civil judgment on your credit reports. Although credit card debt can do serious damage to your credit scores, it can only remain a part of your credit history for a limited period.

Credit Reporting Period

Every time a bank lends you money, whether via loans or credit cards, it takes a risk. The information on your credit report helps lenders determine whether you’re a wise risk. For this information to be accurate, however, it has to be current. People change over time, and their money management skills change along with them. The credit bureaus delete old information to ensure that each person’s credit report provides the best risk assessment possible for lenders.

Active Credit Card Accounts

Active credit card accounts are one of the few items on your credit report that do not have a predetermined reporting period. As long as your account stays open, your credit card company will report each payment you make to the credit bureaus. Although your account can remain on your credit reports indefinitely, your payment history cannot. Your credit report only reflects the last 24 months of payments for each credit card you own. That’s good news if you have a late payment or two lurking within your credit history. Keeping the credit card account open and making timely payments each month ensures that your recent payments rewrite any late payments within two years.

Defaulted Credit Card Accounts

If you stop making payments on your credit card balance, your credit card company will cancel your account after 180 days. The result is a defaulted credit card debt. One of the major ways a credit card default damages your credit is through the series of late payments that led up to the default. Unlike late payments on an active credit card, which are overwritten within two years, a defaulted credit card account remains static. No new payments are arriving to replace the old ones. The account remains on your credit report for seven years from the date the credit card company closed the account and reported it as in default.

Credit Card Collections

You still owe your defaulted credit card debt, along with any fees you incurred along the way, even if your credit card company closed the account. Credit card companies sell defaulted debts to third-party collectors. Contacting your credit card provider and making immediate arrangements to pay is your best chance to avoid dealing with a collection agency.

Collection agencies also report defaulted debts to the credit bureaus. A collection account on your credit report causes further damage to your scores. Worse still, the credit scoring formula does not differentiate between paid and unpaid collections.

Paying the debt at this point doesn’t help your credit and the collection agency will not remove the negative entry afterwards. Collection accounts connected to defaulted credit cards remain on your credit report for the same seven-year period as the original debt. Once the original defaulted entry disappears, the credit bureaus must also remove the collection account associated with that debt.

Civil Judgments

If you don’t pay the credit card company and you don’t pay the collection agency, the next stop in the collection process is a lawsuit. If the collection agency wins that lawsuit, it receives a civil judgment from the court. Once in place, a judgment appears on your credit report and is not subject to the seven-year reporting period that governs collections and credit card debt.

The judgment remains on your credit report for as long as it remains valid. Each state has its own guidelines for how long judgments remain valid, but most states set this time period at ten years. If you pay the judgment during that time, the credit bureaus will remove it from your credit history when the ten-year period is up. If you do not pay it, the creditor can appeal to the court to renew the judgment for another ten years.

Defaulting on a credit card can cause serious issues for your credit for years to come. Fortunately, that doesn’t mean that your credit scores can’t recover. The older an entry is on your credit report, the less weight it carries. This gives you the ability to start rebuilding your credit long before the credit bureaus remove the negative entries associated with your defaulted credit card.