How to Handle a Delinquent Account

ByG. Dautovic
January 31, 2022

A delinquent account is a term used in finance to describe an account that is past due. If you borrow money, or you have a credit card, there are guidelines in place that govern when you need to make payments or repayments. If you miss the deadline, your account becomes delinquent.  

It’s common to hear about delinquent accounts when talking about credit cards. If you have a credit card, and you fail to make a payment on time, your card issuer will class your account as delinquent. In most cases, however, the company won’t report a delinquent account to a credit bureau for 30 days. In some cases, if you have a history of making previous payments on time, you may be given two months to make a payment. 

The number of delinquencies is likely to impact your credit score. Multiple delinquencies will affect your ability to borrow money in the future. 

When Does an Account Become Delinquent?

A lender or credit card issuer will define an account as delinquent once a payment deadline has been missed. There are various levels of delinquency, and in many cases, a credit card company will not report a delinquent payment to a credit bureau until 30 days have passed since the due date. Payments are usually classed as 30, 60, 90, or 120 days late. 

What Happens if My Account Is Delinquent?

The best way to protect your credit score and reduce the risk of penalties and fees is to avoid delinquent accounts. If you miss a due date, creditors may take action, including:

  • Issue late fees; penalties for late payments are usually charged after the first day
  • Report the delinquent payment to major credit bureaus
  • Issue a further charge for late payment if the second payment deadline passes
  • Increase interest rates (penalty APR)for future purchases; this usually happens after 90 days
  • Close the account and report the issue to the major credit agencies; usually after 90 days
  • Charge off the account; after 120 or 180 days, the credit card issuer will either sell or assign the delinquent account to a debt collection agency. There may also be further fees for continued late payments. 

How Do Delinquencies Affect Your Credit Score?

Your credit rating is a numerical value used by banks and other lenders to assess the level of your creditworthiness. If you wish to borrow money or apply for credit, for example, a lender will usually check your credit history and score before they decide whether or not to lend you money.

The higher your credit score, the more likely the lender will approve your application. It’s also beneficial to have a good credit rating because it enables you to access preferential rates and a wider range of financial products. 

Delinquencies have a negative impact on your credit score. If you miss payments, there is a risk of lenders being reluctant to let you borrow money in the future. If your credit score is low, you might also find that you can only take out loans with high interest rates.

This is because lenders will view you as a high-risk customer. Most credit bureaus will deduct at least 25-50 points immediately after a reported delinquency. Further points will be deducted from your credit score if you miss further payments. 

If you have a history of delinquent accounts, your credit score is likely to decrease. Multiple delinquencies can affect your credit score and your ability to borrow money or access credit. It’s also important to note that if a lender reports your account as delinquent to credit bureaus, late payments can stay on your credit record for up to seven years. Even if you settle your account or make a payment so that your account is no longer delinquent, the delinquency will remain on your report. 

How Can I Avoid Delinquency?

Most people who miss payment deadlines do so because they can’t afford the repayment or they have a genuine reason why the payment was late. It can be very difficult to keep up with payments, especially if your financial situation has deteriorated due to loss of income, unemployment, or needing to cover unexpected costs, such as medical care

The following tips can help you to avoid delinquency:

  • Try to draw up a monthly budget: This can help you to plan for payment deadlines and ensure you have enough money to cover repayments. If your budget is tight, and you’re struggling to make ends meet, look for costs you could reduce or eliminate. Setting spending limits is an effective way to lower your outgoings and get rid of unnecessary expenses. 
  • Contact your lender: If you know that there is a risk of missing payment deadlines, contact your lender before your account becomes delinquent. There may be hardship options or payment programs, which could help to prevent you from having a delinquent credit card account and reduce financial pressures and anxiety. There is often help available for people who experience financial emergencies. 
  • Tackle high-interest debts: It may seem illogical to try to clear debts if you’re finding it hard to pay bills, but if you tackle high-interest debts, you’ll reduce your overall outgoings and lower the risk of penalty charges and extra fees for late payments. 
  • Seek expert advice: If you can’t pay bills on time or make payments, the best course of action is to seek advice from experts. There are options available to clear debts, such as consolidation loans and debt management plans. Financial advisers will be able to talk to you about solutions that are relevant to your financial situation. 

Can You Remove a Delinquent Account From Your Credit Report?

If you have a delinquent account, or you have missed a payment deadline in the past, it’s understandable to want to try to remove the late payment from your credit report. In most cases, a delinquent payment is removed seven years after the original delinquency. 

Sometimes, it may be possible to remove a delinquent account from your credit report before the credit bureau eliminates the late payment record. Examples of scenarios when this may be a viable option include disputing the removal date and trying to negotiate with a creditor or debt collection company. 

  1. If you believe that the delinquent payment has been on your credit report for longer than seven years, contact the major credit bureaus and submit a dispute. 
  2. If you want to try to remove the delinquent account earlier, you can liaise with the creditor or collection agency and ask them to update your credit report. This is a rare scenario, and most agencies will not offer to do this unless you agree to settle your account in full. If you do agree to this, make sure that you have the offer from the creditor or collection agency in writing before you make the payment. 

How To Handle Delinquent Accounts

The best way to prevent stress and changes in your credit rating linked to delinquent accounts is to make sure that you meet payment deadlines. Always ensure that you know when you have to pay creditors and check your balances and statements as the deadline approaches.

If you are struggling to make payments, it is best to contact the lender rather than letting the account become delinquent. It may be possible to move the deadline back or participate in a repayment program as part of a hardship program

If your account becomes delinquent, it’s beneficial to try and make your payment as soon as possible to avoid further financial penalties and multiple delinquencies, which can affect your credit rating.

Summary

A delinquent account is a term used to describe an account that is past due. If you miss a payment deadline for a loan or credit card, for example, your account becomes delinquent. Delinquencies can affect your credit rating, and they usually stay on your credit report for seven years. It is best to try to avoid delinquent accounts by managing your money and contacting the lender or seeking professional financial advice if you are finding it hard to pay bills on time. 

FAQ

What is a delinquent account?

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A delinquent account is an account that is overdue. If you miss a payment deadline, your account becomes delinquent.

What happens when your account is delinquent?

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If your account is delinquent, a lender or credit card issuer may charge a late payment fee and report the delinquency to the major credit bureaus, such as TransUnion and Equifax. In the case of credit cards, this usually happens 30 days after the payment deadline is missed. If your account stays delinquent and you miss further deadlines, you’ll be charged more, and your credit score will decrease further.

Can a delinquent account be removed?

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Late payments usually stay on your record for seven years. It may be possible to remove a delinquent account if you believe there’s been a mistake, or you negotiate with the creditor or collection agency for early removal. It is unlikely that a delinquent account will be removed early if it’s a genuine missed payment.

How do you fix a delinquent account?

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The best way to deal with a delinquent account is to make your payment as soon as possible. You can try to avoid delinquency by checking your accounts, drawing up a monthly budget to regulate spending, and contacting the lender or credit card issuer if you’re going to struggle to make the deadline.

About author

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

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