What is Delinquent Account / credit card delinquency? (Detailed)
What is Delinquent Account / credit card delinquency?: More often than not, people find that their credit card application or a fresh loan application being rejected by the banks on account of Delinquency. However, it is obvious that the level of understanding of the individuals of Delinquency is very poor. A mention of Delinquency on your credit report is sort of warning mark to the lenders and banks reminding the level of risk associated with lending you the money.
What is Delinquent Account?
In general any account past due is said to be Delinquent. So, if you not paid your loan installment till today though it has become due just 2 days before, then you are said to be delinquent. In the context of credit cards, it is slightly different. A credit card is said to be delinquent once 30 days have gone past the due date during which the cardholder has not made the minimum amount due. Usually, credit card issuer reports the cases of delinquency after 30 days have passed past the delinquency.
What if your account becomes delinquent?
- A delinquency once reported by your lender to the credit rating agencies that will result in an immediate drop in your credit score.
- A delinquent account is a symbol of your inability to pay off the loans when they become due. Thus, in the long run it will be very difficult for the borrower to get out of that image and get a bank loan or a credit card sanctioned.
- Generally, the details of your delinquency remain reported in your credit report for 7 years. This is an extremely difficult to get out though the existing loans and credit card dues have been paid off in some way.
- Banks do not trust the creditworthiness of the borrowers with history of delinquency. Even you have taken corrective action and managed your finances well, may improve your credit score but it cannot erase the past records of delinquency. So, once, you become delinquent, it is very difficult to get rid of the unfavorable consequences it poses to you.
- If your existing credit score 800 which is an ideal one, being delinquent either on an loan account or on the account of default in repayment of multiple credit card dues may hit your credit score as badly as by 100 points making your credit score 700. Though 700 is not such a bad number, still the banks and any other lenders will not be ready to offer best interest rates. Instead they will offer the loans at high interest rates citing your history of delinquency.
- If the delinquent accounts remain unpaid for longer periods, your lender or credit card issuer will sell off your delinquent loans/credit cards to third party debt collectors reporting to the credit rating agencies that your loan /credit card is charged off. This will further damage your credit score taking it to another low level.
What are the reasons for delinquency?
- Paying less than the installment due.
- Paying just the minimum due amount. Minimum amount due is the amount which you have to pay to avoid late payment fee. May times, borrowers overlook their total due amount and pay off only the minimum amount letting the remaining amount due carried on to following months.
How to manage delinquency?
Once you are reported to be delinquent, there is nothing that you can do except building up your positive credit performance. Since the delinquency mark will stay for years on the credit report, over shadowing it by extremely positive usage information is the best way to deal with delinquency. And this will not take place in short term. A positive credit image can be built over the time. Inculcating a disciplined credit management by paying off the loans on due dates. And maintaining a least credit utilization ratio may help till some extent.