August 16, 2022

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What Does It Mean to be Delinquent?

Delinquent is a term that carries many negative connotations. We often refer to people as delinquents when they’re up to no good or causing trouble. However, delinquent is also a term that could be used to describe anybody who has a credit card.

Here, we examine what the term means in the context of credit cards and the implications attached to being delinquent. We also look at some steps you can take to fix delinquency.

Explaining Credit Card Delinquency?

Credit card delinquency is the term creditors use to describe a borrower who fails to make their credit card repayments. The term is applied as soon as you fail to make your payment. As such, a single missed payment leads to you being labeled as a delinquent.

Typically, the creditor will give you up to 30 days to rectify a missed payment. Failure to make your payment in that period results in the late payment getting reported to the major credit bureaus.

What Happens When You’re a Credit Card Delinquent?

The ramifications of delinquency affect both your use of your credit card and your credit score.

In terms of your credit card, your credit supplier may choose to suspend the use of the card. A suspension may occur several months or just days after the missed payment. The period depends on the credit supplier and their terms for missed payments. In this suspension status, you are unable to make any new purchases with the card.

Should the issue persist for several months, your credit supplier may opt to raise the level of your suspension so it applies to your entire account. When this happens, you must take action to lift the suspension. Actions may involve making at least one minimum repayment, with late fees attached, to reactivate the account. In some cases, a credit supplier may work with you to arrange a new payment plan if you have financial difficulties. You could also work with an independent credit counselor to come up with a solution.

If the issue continues beyond four months, your credit supplier may revoke your account. which is a permanent action resulting in the card issuer closing the account. Revocation of credit has a substantial impact on your credit score. The credit supplier reports the revocation to all the leading credit bureaus. Your utilization ratio will also likely increase, making it harder for you to apply for loans or other forms of credit.

Eventually, the lender may “charge off” your account, meaning they change the account’s status so your debt is no longer considered an asset. This does not mean that you are no longer liable for the debt. Instead, the credit supplier may contact a collection agency to chase the money owed.

Charging off is a severe event that does a lot of damage to your credit score. According to TransUnion, one of the three credit bureaus a delinquent account can remain on your credit report for up to seven years. This can be especially impactful if you have good credit to begin with. Based on research from FICO, a delinquent account resulted in a consumer with a 750 credit score experiencing a decrease in the their credit score of 70 points!

How Can You Fix a Delinquency?

The most obvious way to fix the delinquent status is to repay your credit card bill. Making the minimum payment, along with any late fees, within 30 days of missing a payment will usually allow you to avoid account suspension. However, the missed payment may still be added to your credit record.

If you are struggling to make the minimum repayment after 30 days, contact your credit card issuer. Many lenders have hardship programs, including relief programs related to the COVID-19 pandemic. These programs exist to help people undergoing financial hardship as a result of circumstances beyond their control. You may find that you can reduce your minimum monthly repayment with one of these programs. Alternatively, your credit supplier may suggest a credit card forbearance plan, which allows you to delay payments for an agreed-upon period.

If your credit card is charged off, the debt will likely get handed to a collection agency. Consider contacting the agency to create a payment plan. You may even be able to negotiate a settlement with the agency that resolves the debt through payment of the majority of the balance. In such cases, a lump sum payment of between 50% and 80% of the debt may be acceptable.

While each of these solutions helps you to resolve the delinquent status, your credit report will still show evidence of missed payments and account suspensions. These issues will be a part of your credit report for seven years after the date of the original delinquency unless you’re able to prove they’re illegitimate.

Avoid the Delinquent Status

The best way to solve the credit card delinquent status is to not allow it to occur in the first place. By making at least your minimum payment each month, you satisfy your creditor’s requirements and avoid delinquency.If you do miss a payment, aim to rectify the issue as quickly as possible. This limits the amount of time you’re classed as a delinquent, which minimizes the impact on your credit score.

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