Often, people find that they are turned down for a loan because they have a ‘delinquent account.’ This might be the first time they would have heard they have a problem. However, it might have already been too late to prevent its appearance on their credit report, resulting in a lower credit score.
Having a delinquent account is similar to having a red mark on a report card. It warns potential lenders that the consumer might have a problem meeting his/her financial obligations and signals that it might be risky to lend to such a consumer.
What is a Delinquent Account?
Any account that has not been paid past the due date is considered delinquent. Technically, even a one-day delay in repayment can cause your account to be reported as delinquent.
However, your lenders give you some leeway and do not report the incident immediately. They may try to remind you with an email/phone call. Usually, it is only past 2 late payments that an account is termed delinquent on a consumer’s credit report.
What are the Causes of Delinquent Accounts?
The main reason an account is termed delinquent is because of late or skipped payments.
Late repayments can be on various levels with varying consequences for the individual’s credit score. A consumer might repeatedly make late payments on a single account for a few months or might skip a couple of payments altogether.
Delinquencies for loans are reported on 30,60, 90 and 120 days past the due date. Naturally, the greater the number of late payments, the worse the effect on the credit score.
Additionally, late payments for one or many months on multiple accounts (e.g. on the credit card, auto loan or mortgage accounts) also leads to the account being termed delinquent.
It signifies an inability to fulfill current debt repayments and warns lenders about future difficulties. Repeated late payments have a severe impact on a person’s credit score. This is possible as all your accounts are linked by your PAN.
In the case of credit card companies however, the situation is slightly different. They usually wait for a 30-day period – without a minimum due payment being made - before terming an account delinquent. Thus, while there is some leniency on credit card repayments, it is best to pay at least the minimum due on time to avoid the danger of delinquency.
What Are The Short-Term Consequences Of Having A Delinquent Account?
A single delinquent account can lead to an immediate drop in the consumer’s credit score. Multiple late payments across various loans or credit cards can cause a drop of over 100 points in an individual’s score.
What Are The Long-Term Consequences of a Delinquent Account?
When it comes to the long-term effect, it will be extremely difficult to get credit in the future with a delinquent account. A delinquent account is a red flag for future potential lenders. They see such consumers as having difficulties fulfilling even current financial obligations and would have problems paying off future loans as well. Banks and other lenders would want to, therefore, stay away from lending to such borrowers.
The second consequence is that information on a delinquent account remains on the consumer’s credit report for 7 years. Thus, even if the individual has repaid all his debts in full, the fact that he has a history of late repayments stays on his record for a long time, acting as a warning to future lenders for seven more years.
Sometimes, this record is not erased even after seven years and it takes more time and effort to rectify this administrative error.
What Should You Do When You Discover You Have A Delinquent Account?
It is important to identify the account that is delinquent and take actions to clear it accordingly.
Ways to clear off a Delinquent Account
- If it is a loan account, identify the outstanding amount. Once you identify the amount, it is also important that you make sure the delinquency is not due to any error. It might happen that the payment was made by you but reflected as not paid by your lender. In those cases, you would need to produce the proof of payment.
- If you haven't paid, make attempts to clear off the entire outstanding amount as soon as possible. You could make use of your bonus, increments or amount from your savings account to make a lump-sum payment to clear off your delinquency. The faster you are able to clear it, the better it would be as you can save on interest that is getting piled up by the day.
- If you are unable to make a lump-sum payment, then talk to your lender and ask for payment in installments. You may be able to work out a convenient repayment schedule spread over few months. Of course, an interest component may be added here, but it allows you a breather. If you are looking for payments in installments, you can subscribe to CreditMantri’s Credit Improvement Service, wherein you will get the best possible EMI options for your amount due.
- If none of the options works for you, think of Settling the account. In this process, you explain your inability to make the full payment to the lender, and you decide on an amount which can be paid from your end to Settle the account. However, settling an account will leave a mark on your Credit Score similar to your Delinquent account, but you will not have to accumulate any more interest.
- If it is a credit card account which is delinquent, then as an immediate first step, make sure you at least make the minimum due payment on your credit card every month. Although, this still wouldn’t exempt you from the interest to be paid on the outstanding amount.
|Ways to Resolve Delinquent Accounts|
|Step 1||Identify outstanding amount|
|Step 2||Check if there is any error causing the delinquency|
|Step 3||Pay the outstanding amount. Lumpsum payment is recommended to improve your credit score quickly|
|Step 4||Get the closure letter from the lender|
Focus all your efforts on clearing up your delinquent loan account/s.
We at CreditMantri can help you clean close your delinquent accounts with the best repayment options. This will help stop the continuing negative impact on your credit score caused by a problem account. After the closure, consistently repaying your then dues would subsequently improve your credit score.
If I Ignore Payments, Will The Bank Write My Account Off?
Yes, but it does not mean your problem will end. If a person makes no attempt to rectify a delinquent account, lenders will write off the account after six months.
What Do I Do if an Account is Wrongly Recorded as Delinquent?
It is good to check your credit report periodically to catch any errors. In case of a wrongly attributed account, you can file a dispute with the concerned credit reporting company. CreditMantri can help you with this process with its Credit Improvement Service.
To avoid getting into situations like these, we advise you to always be responsible with credit. Borrow only as much as you can repay comfortably and always be prompt in your repayments.