Delinquent Account

A delinquent account is a credit account on which a consumer has failed to make at least the minimum monthly payment by the due date. A delinquent account that is 30 days past due will spur the credit card company to start contacting the consumer about bringing the account current. If the account becomes 60 days delinquent, then the credit issuer will begin reporting the borrower as delinquent to credit reporting agencies with continued actions for collection. Sometimes creditors will work with delinquent customers in the early stages of delinquency to negotiate different repayment terms that will help the customer bring the account current.

A delinquent account has an effect on a borrower’s credit score and credit profile. Credit issuers actively seek collection of debt on delinquent accounts after a borrower has missed one payment. However, credit issuers do not begin reporting late payments until a borrower has missed two consecutive payments or is 60 days past due.

Borrowers with a credit history will have an established credit profile with credit reporting bureaus which lists each account as an individual trade line on their credit report. An account will receive its first delinquent notation when it is reported as 60 days past due, with further delinquent marks being added to an account if missed payments continue. Lenders also keep internal records of payments, with delinquencies causing late fees and higher accumulated balances as well as keeping borrowers from receiving higher credit limits. Some issuers may also begin charging a penalty rate of interest for borrowers in delinquency. Issuers cannot however base account charges on delinquencies with other lenders.

Even one delinquent account notation will affect a borrower’s credit score almost immediately. A borrower’s credit score can decrease by 25 to 50 points when a delinquency occurs with subsequent delinquencies causing further decreases. Thus, a 25 to 50 point drop could be enough to put a borrower in a lower category of credit worthiness. For some borrowers this could mean going from a super-prime or excellent borrower, with a score of 740, to being considered merely a near-prime or acceptable borrower, with a score of 660. This lower credit score also affects a borrower’s eligibility for new credit and the interest rates they are charged.

Account delinquencies are one of the most challenging factors to overcome for borrowers seeking to improve their credit score. Delinquencies typically remain on a borrower’s credit report for three to five years. Credit scoring formulas look at each individual’s overall credit profile when determining a score, therefore delinquencies tend to affect each borrower differently. However, since payment history is one of the most important components of a credit score, a late payment will always have a negative impact. In addition, a recent delinquent account will have a more significant impact than an older delinquent account that has since been brought current.

Most credit issuers maintain proprietary debt collection services for early delinquencies. However, delinquent credit card accounts that remain unpaid will eventually get sold to a third-party debt collector. These debt collectors are charged with obtaining the original debt owed with interest and may take legal actions. Debt that is considered written off is also reported to credit bureaus and can have an even greater negative impact on a borrower’s credit score than single delinquencies.