Worried about delinquent account? Here are a number of ways in which you can deal with them and also how to get them off your credit report
Often, people find that they are turned down for a loan because they have a ‘delinquent account.’ This might be the first time they have heard they have a problem. By then it is too late to prevent its appearance on their credit report and the resultant consequences of a lowered credit score. Having a delinquent account is like 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. Usually, it takes 2 late payments before 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 ofpayments altogether. Delinquencies are reported 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 the consumer’s credit score.
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?
It will be extremely difficult to get credit in the future. A delinquent account is a red flag for future potential lenders. They see such consumers as having difficulties fulfilling even current financial obligations and will have problems paying off future loans. Banks and other lenders will, therefore, stay away from lending to such consumers.
A 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 I do when I discover I have a delinquent account?
As an immediate first step, make sure you at least make the minimum due payment on your credit card every month.
Focus all your efforts on clearing up your delinquent loan account/s. Credit Mantri can help with negotiating with your lenders to arrive at a mutually acceptable payment plan to clear your debts. This will help stop the continuing negative impact on your credit score caused by a problem account.
If I ignore payments, will the bank write my account off?
Yes, but it does not mean your problem will end. If the consumer makes no attempt to rectify a delinquent account, lenders will write off the account after six months. They usually turn over the account to a private collections agency which can potentially use extremely aggressive methods to recover the payments.
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. Credit Mantri can help you with this process.