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Delinquent Accounts: What They Are And How To Deal With Them

Miranda Crace7-Minute Read
UPDATED: June 03, 2024

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Everyone would always like to pay their bills on time and in full when they’re due, but life can have a way of making this almost impossible at times. With all the expenses people face today – from high rent bills to rising gas prices, soaring medical bills and other costly life events – it can be easy to fall behind on payments.

Unfortunately, short-term consequences result when payments are late. From penalty fees to a reduction in credit score, late payments can have costly consequences. Fortunately, it’s possible to recover financially even after credit card accounts or loans have fallen into delinquency.

Let’s walk through an explanation of a delinquent account and the actions you can take to overcome the negative impacts of your account’s delinquency.

What Is A Delinquent Account?

If an account is labeled “delinquent,” it means a borrower has missed a payment due date on a mortgage, auto loan, student loan, credit card or another type of monthly payment. Generally, accounts that are 30 days or more past due are considered delinquent, but some lenders may mark accounts as delinquent even sooner. For example, if your personal loan payment is due on the fifth of every month and you haven’t paid on the sixth, your account could be treated as delinquent.

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What Does A Delinquent Account Mean For You And Your Credit?

A delinquent account can mean bad consequences for your personal finances. It will cost a borrower even more money – in late fees and higher interest rates – when their payments are late.

Late payments can cause trouble for a borrower in several ways, which we’ll review momentarily.

Late Fees

Late payments can have some serious ramifications for a borrower’s financial situation. Their credit score will plummet, and some providers may raise the interest rate they charge or impose a high penalty fee. The borrower’s credit reports will show they’ve missed payments, making it more difficult for them to qualify for a new loan or credit card.

If the borrower continues to make late payments or stops paying altogether, their lender might eventually close their account. This will vary by provider, but many lenders will close an account after a failure to make a payment in 90 days or more. The money owed isn’t forgotten, though. Lenders expect and will pursue repayment of the full balance.

Being Reported To Credit Agencies

If you can make your required monthly payment before you’ve hit the 30-day mark, your lenders and credit card companies may not report your missed payment to the three major credit bureaus: ExperianTM, Equifax® and TransUnion®.

If your late payments are reported to the credit bureaus, a single late payment can send your three-digit FICO® Scoreplummeting by 100 points or more. These missed payments also stay on your three credit reports for 7 years.

Lenders and creditors usually won’t take action against a borrower until their loan is delinquent for a longer period of time. For instance, credit card providers can’t raise a borrower’s interest rate because of missed payments until they’ve fallen at least 60 days behind on paying their card.

The Account Going To A Collection Agency

Lenders can send an account or loan to a debt collection agency once a payment is 31 days or more past the due date. Most lenders probably won’t take this action so quickly, though. There are no rules here, but many lenders and credit card providers want to work with the borrower and will wait until they’re around 180 days late before sending the account to a collection agency.

Don’t wait that long to pay off the unpaid debt, however. Debt collectors can be aggressive in tracking down the money they’re owed.

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How To Deal With A Delinquent Account

When someone falls behind on credit card payments, it’s possible to get back on track in several ways, which we’ll look at next.

Automate Your Processes To Enforce Payment Discipline

If you’re still on the right side of delinquency – you’ve received past due notices and paid late fees but your account hasn’t been suspended or subject to collection – automating your payment process could go a long way toward resolving credit deficiencies.

If your daily commitments make it hard for you to make all your payments on time, automating your bill payments could take the stress and hassle out of making sure this happens. Plus, you can reap the benefits of an improved credit score and no more late fees.

Call Your Lender To Ask For A Payment Plan

The first step you should take when you run into financial headwinds is contacting your lender. They may be willing to work out a compromise or plan that will keep your account from falling into delinquency.

Lenders might allow you to make a smaller monthly payment you can afford each month until you pay off your debt. Some lenders might accept less than you owe, just to get at least some money from you. Let’s say you owe $10,000 in unpaid credit card debt. Your provider might be okay with a one-time payment of $6,000, taking the remaining $4,000 you owe as a loss.

Consider A Loan To Consolidate Your Debts

If you can’t work out a solution directly with your credit card provider, you might consider debt consolidation. Under this process, you essentially combine all your debts into one large loan. You use the funds from a loan or credit cardto pay off your other debt and then make regular payments on this new loan.

The goal is to end up with a single loan that comes with a lower interest rate than the average rate on your outstanding debts. You also want a monthly payment you can afford. Common debt consolidation loans include personal loans as well as balance transfer cards for credit card debt.

Think About Negotiating

Most lenders want to work with their clients and therefore may be willing to negotiate if a borrower asks for a reduction in their account balance.

You may be able to negotiate with your lender or creditor in two main ways.

Debt Settlement

If there are multiple delinquencies, a borrower might receive offers from debt settlement companies. These companiesoffer to negotiate with creditors on your behalf to lower the total payment due in return for a lump-sum payment to settle the account in full.

Dealing with debt-settlement companies can sometimes be risky, though, and leave borrowers with more debt than before. You may save yourself some trouble by attempting to do your own negotiating or having a skilled negotiator you know do it for you. You or your designated representative can call and try to negotiate an amount less than what’s owed in return for a lump-sum payment in full.

By Paying What You Owe

If you can negotiate a lower payback amount and access a loan or other financing option to help pay off that amount, you can immediately put the matter behind you and rebuild your credit.

However, you can also negotiate a repayment plan with your creditors that will take your financial situation into account. If your situation is temporary, as with a job loss or illness, they may be willing to enter into a short-term forbearance that will give you some breathing room while your problem resolves.

Consider Bankruptcy, But Only As A Very Last Resort

If you have so much debt that even the minimum monthly payment is too high, or if you’re worried it will take years to pay off your credit card debt by only making the minimum payments, it may be time to look for alternative solutions.

One solution if your debt problems are too overwhelming is filing for bankruptcy protection. You should take this step only as a last resort, though. Bankruptcy will remain on your credit history for 7 or 10 years, depending on the type of bankruptcy you file.

Filing for personal bankruptcy is a big financial setback, and if it’s something you’re considering, it’s best to speak with an attorney about your options before making a decision.

How To Avoid Having A Delinquent Account

If you have a chronic problem with making ends meet, the first step is to create a household budget that lists your monthly expenses and income.

Try to make the minimum payments and avoid using your credit cards while you pursue a settlement or a debt consolidation loan. It will result in far less long-term damage to your credit score and give you more loan options at a lower cost.

Next, keep your credit card balances and your overall debt level low. Consider some ways of reducing your credit card debt and finding ways to reduce your debt load. Your debt-to-income ratio (DTI) is a strong measure of your financial health.

Add up all your monthly debt payments and divide them by your gross monthly income. Use this debt-to-income calculator to calculate your DTI and try to keep it around 36% or lower.

FAQs About Delinquent Accounts

With so much to know about delinquent accounts, you might still have questions. Here’s what others are asking about delinquent accounts.

How long do delinquent accounts stay on credit reports?

A delinquent account will stay on your credit report from all three credit bureaus for 7 years. Additionally, late or missed payments can lower your credit score by 100 or more points.

Does a delinquency get removed after it’s paid off?

No, a delinquent account will remain on your credit report for the full 7 years from when it became delinquent, even if it gets paid off. If your account is sold to a collection agency, it’ll be removed from your report 7 years from when it first became delinquent with the original creditor.

Can I reopen a delinquent account?

If your account was closed because of late or missed payments, it’s unlikely you’ll be able to reopen that line of credit. You would have to convince the credit card provider you’ve repaid the original balance and are now able to make on-time payments.

Final Thoughts

Delinquent accounts can cause harm to your credit score and cost you money in fees and raised interest rates. If you experience financial issues, don’t ignore your creditors. Get in touch with them to work out a repayment agreement as soon as you realize there’s a problem. Then, automate your payments and make sure they’re on time and meet minimum amounts. You could also better organize your debt by consolidating all of your debt with a personal loan.

If you’re ready to take the first step toward debt consolidation, apply for a personal loan online today.

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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.