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If you’ve never gotten a call from a debt collector asking about your past due payments, consider yourself lucky. Since the start of 2021, the total amount of U.S. household debt has been on the rise and more and more Americans are finding themselves with a pile of missed payments on their accounts. This is especially true for younger Americans, ages 18-29, who according to the Federal Reserve Bank of New York had higher rates of 90-day delinquency in 2021 than their older peers.
One missed payment can easily escalate to a collections case if you’re not careful. That’s why it’s important to be proactive against delinquent debts, which can have a serious impact on your credit score.
Learn what you need to know about delinquent accounts and how to avoid them.
What Is a Delinquent Account?
A delinquent account refers to any type of money that you have borrowed from a lender or credit card issuer that was not paid back on time and under the agreed-upon terms of the scheduled payment. So if the due date on your account comes and goes without a payment, your account may be reported as delinquent.
There are consequences for delinquency depending on the form of financing, the duration, and the cause of the delinquency. The most common types of delinquencies occur with things like credit cards, mortgages, student loans, car loans, as well as unsecured personal loans.
How Do Delinquent Payments Affect Your Credit?
Payment delinquency can adversely affect your credit score and credit standing if a lender reports it to the credit bureaus. Most lenders won’t report an account as delinquent until it’s 30 days past due. If you are able to make a payment while your account is less than 30 days delinquent, it’s unlikely that your credit score will be affected. However, as more time passes without at least a minimum payment on the account, your credit rating will suffer, particularly if the delinquency persists beyond the 60-day mark.
According to FICO data, consumers with higher credit profiles will see harsher effects on their scores 30 days after a missed payment. If your debt remains delinquent for long enough, it will eventually appear as a derogatory mark on your credit report. A derogatory mark will do even more damage to your credit score and might prevent you from getting loans, competitive interest rates, and other financial services in the future.
Keep in mind that the older the delinquent account, the less impact it will have on your credit score. So a delinquent debt that is 3 years old will inflict less harm to your credit than one that is 3 months old.
How to Avoid Credit Card Delinquency
We are all guilty of making a late payment — from time to time — on money we owe. The best way to avoid ongoing missed payments is to remain diligent with your debt and have a plan in place.
Here are some tips for managing debt and steering clear of delinquency:
- Set up autopay and reminders — If you have numerous monthly bills and struggle to keep track of them, setting up autopay with your bank, credit union, or lender can help ensure that you never miss a payment. In addition to autopay, you can also set up reminders and alerts on your calendar so you don’t forget a due date.
- Create a budget and stick to it — A budget will give you a better idea of how much you earn and how much you can spend. Commit to spending within your means so that you’ll have enough money to pay off your balances in full each month.
- Check your credit report regularly — Reviewing your credit report can be a great tool in evaluating your current debt situation. Check to make sure that the information reported is accurate and up-to-date. If you see information you believe is inaccurate, contact the credit bureau that provided the report.
- Stop spending on your credit cards — Try putting away your credit card and using a debit card for your everyday expenses. This will prevent you from racking up more debt and digging yourself into a deeper hole.
- Consider consolidating your debt — A balance transfer credit card or a personal loan might help you secure a lower interest rate, which can make paying down your debt a faster process. The important thing is to not rack up new debt after you consolidate.
- Call the credit card company and explain your situation — If you’re getting behind on payments, reach out to the creditor right away, before your account becomes delinquent. Alerting them to your situation will make them more likely to work with you on a solution — remember that creditors want to avoid having to charge off the debt as a loss, just as much as you do.
What to Do if You Already Have Delinquent Debt
Having a delinquent account(s) is not the end of the world. It’s simply intended to be a warning that you’re behind on your payments and need to catch up. You can still maintain a decent credit score with a late or delinquent payment in your history.
Follow these steps to counterbalance and remedy the impacts of delinquent debt on your account.
1. Prioritize Making Delinquent Payments
If your credit account has been delinquent for more than 30 days, the first thing you should do is make your overdue payment(s) as soon as possible — don’t let them spiral out of control. The sooner you can start making payments, the sooner you’ll get out of delinquency and back on track.
2. Contact Your Lender
The best next step is to reach out to your lender to begin the recovery process. If you need help paying off a delinquency, try to work out a payment plan with the creditor or ask about hardship programs that could help in the case of temporary income loss or other financial setbacks. You can also inquire about credit card or loan forbearance programs that can help you get back on your feet.
3. Contact the Debt Collection Agency
If your delinquent debt has already gone to collections, contact the debt collection agency and try to work out a payment plan. The debt collector can explain your options for repayment, such as a lump-sum payment or a plan to pay off the debt over time. Know your rights, as the Fair Debt Collection Practices Act (FDCPA) gives consumers protections at the federal level, and most states also have laws about debt collection practices.
4. Commit to Making On-time Payments
Going forward, if a late payment caused your credit score to drop, the best thing you can do is to continue making on-time payments on all of your accounts. After a few months of consistent on-time payments, your credit scores could slowly improve.
How long do delinquent accounts stay on credit reports?
According to the Fair Credit Reporting Act (FCRA), delinquent accounts can remain on your credit reports for up to 7 years from the date they happened. Even if you make payments toward the late payment or settle the account, the delinquency can still stay on your credit history.
How do I remove delinquent accounts from credit reports?
A delinquent account will typically be removed from your credit report after 7 years. If you realize that a reported delinquency wasn’t removed when it should’ve been, you should retrieve a copy of your credit reports from the 3 major credit bureaus (TransUnion, Experian, and Equifax). If you believe a credit bureau has included a delinquency that is inaccurate or outdated, you can file a dispute with the credit bureau.
When do lenders report accounts as delinquent?
Late payments generally won’t end up on your credit reports for at least 30 days after the date you miss the payment, although you may still incur late fees. If you make the full late payment before that 30 days is up, lenders and creditors may not report it to the credit bureaus as delinquent.
Ultimately the best way to avoid or remedy delinquent accounts is to be a responsible borrower. If you are late with a payment, do what you can to pay it before it becomes 60 or 90 days late. The sooner you rectify your past-due accounts, the better your chances of maintaining a good credit standing.