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6 Tips for Managing Delinquent Accounts

Timothy Moore • June 29, 2023

What is a delinquent account, how can you avoid having an account go delinquent, and what's the impact on your credit score when one does? We'll break down these and other questions below.

What is a delinquent account?
A delinquent account is one in which you’ve borrowed money and not paid it back on time. For example, missing a credit card payment — and not working quickly to resolve it — can lead to your account being labeled delinquent.

Credit cards and loans are valuable tools: You can borrow money when needed and pay it back over time in manageable installments. But what if you can’t afford the payment or forget about it?

Not holding up your end of the bargain when borrowing money can result in a delinquent account. You’ll potentially incur late fees from the lender you didn’t pay, and that lender could report the delinquency to the credit bureaus, which can affect your credit score.

 

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What is a delinquent account?

A delinquent account is an account with money you borrowed from a lender or credit card issuer that you did not pay back on time and under the agreed-upon terms. If the due date on your account comes and goes without a payment, your account may be reported as delinquent.

Delinquent accounts can result in late fees from creditors. Some lenders may also raise your annual percentage rate (APR), which makes it more costly for you to borrow in the future.

A delinquent account can also result in negative marks on your credit report. This, in turn, lowers your credit score and may make it more difficult to borrow down the road.

If you continue to miss payments, the lender may be able to seize your assets in the case of mortgages and auto loans. The lender may close the account for unsecured credit cards and personal loans. Eventually, the lender will send your information to a debt collection agency.

What does delinquent mean? In day-to-day language, “delinquent” may refer to someone who has committed a minor crime or offense. In finance, “delinquent” refers to an account with a missed payment or payments.

How to avoid late payments

The consequences of a delinquent account can be far-reaching on your finances. To avoid having an account labeled as delinquent, keep up with all your payments – and act quickly if you ever miss one.

Here are a few strategies to avoid late payments on your credit accounts:

1. Set up autopay and reminders

Juggling all your monthly bills and various due dates can be challenging. One way to ensure you never miss a due date is to set up automatic bill payments.

Just make sure you have enough money in your checking account to avoid overdraft fees, or switch to an account that doesn’t charge overdraft fees.

If you don’t like the idea of online bill pay – or want to make sure you pay more than just the minimum payment on your credit card – you can still manually make your monthly payments. Set up reminders on your calendar, phone, or physical planner to ensure you never miss a payment.

2. Create a budget and stick to it

By creating a budget based on your income and necessary monthly expenses, you’ll better understand how much you can spend each month. If you stick to this budget, you should always be able to afford your monthly bills – and keep your accounts from going delinquent.

If you’re routinely spending more money than you bring in, examine your budget and determine which expenses you can cut out. Prioritize groceries, utilities, rent or mortgage payments, and other necessary expenses, and try to cut costs like gym memberships, streaming services, and dining out.

3. Reduce your credit card spending

If high credit card bills make it challenging to keep up with monthly payments, avoid swiping your credit card when possible. Instead, use your debit card. That way, you’re only spending money you already have, and there aren’t any stressful bills at the end of the month.

Using your credit card less often can also help you improve your credit score. That’s because credit utilization – how much available credit you actually use – impacts your score. By using less of the money you’re allowed to borrow, you’re showing lenders that you’re responsible with their money, and your score will reflect that.

4. Consolidate your debt

Managing multiple sources of debt – whether it’s personal loans, medical debt, or high-interest credit cards – makes it easier to miss a payment. After all, you might have to memorize several different due dates.

See if you can consolidate your debt into one single monthly payment instead. This will make it harder to miss a payment and could ultimately save you money if you get a lower interest rate.

Debt consolidation loans are an excellent strategy for this. You’ll get a lump-sum payment through a personal loan, pay off all your outstanding debts with the cash, and then make one monthly payment on the personal loan instead.

5. Call your creditors

If you’re falling behind on payments, contact the creditor before your account becomes delinquent. Alerting them to your situation will make them more likely to work with you on a solution. Creditors want to avoid writing off the debt as a loss, just as much as you do.

6. Build an emergency fund

Start building an emergency fund with every paycheck. Even if you can only put $25 or $50 a month into a high-yield savings account, it can add up and help you with any emergencies down the road. Which means you might not need to rely on your credit card.

And the less you swipe your credit card – especially for those unexpected expenses – the less likely you are to miss a payment!

Start building credit with the secured Chime Credit Builder Visa® Credit Card – no credit check required.*

How delinquent payments affect your credit

When you miss a payment, the lender can report this to the credit bureaus. The missed payment will appear as a derogatory mark on your credit report. Derogatory marks can lower your credit score. They may also prevent you from getting loans, competitive interest rates, and other financial services in the future.

Most lenders won’t report an account as delinquent until it’s 30 days past due. If you can make a payment while your account is less than 30 days late, your credit score likely won’t be affected.

But 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.

If you have a good credit score, you have more to lose by missing a payment. According to FICO data, missed payments have a larger impact on people with clean credit profiles.1

The age of the delinquency will also affect how much of an impact it has on your score. In general, the older the delinquent account, the less impact it will have. For instance, a three-year-old delinquent debt will inflict less harm on your credit score than one that is three months old.

What to do if you already have delinquent debt

You can rebound from delinquent debt. An account marked delinquent is simply 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 remedy the impacts of delinquent debt on your account:

1. Prioritize making delinquent payments

If your credit account has been delinquent for over 30 days, you should make your overdue payment(s) as soon as possible. The sooner you can start making payments, the sooner you’ll get out of delinquency and back on track.

2. Contact your lender

Reach out to your lender to discuss the recovery process. If you need help paying off a delinquency, try to work out a payment plan with the creditor. Ask about hardship programs for temporary income loss or other financial setbacks.

You can also inquire about credit card or loan forbearance programs to help you recover.

3. Contact the debt collection agency

If your delinquent debt has already gone to collections, contact the debt collection agency and try to create a payment plan. The debt collector can explain your options for repayment, like a lump-sum payment or a plan to pay off the debt over time.

Know your rights: The Fair Debt Collection Practices Act (FDCPA) gives consumers protections at the federal level,2 and most states also have laws about debt collection practices.

4. Commit to making on-time payments

In the future, prioritize making on-time payments every month. This will help you avoid future delinquencies and is also one of the best ways to improve your credit score.

Avoid delinquent accounts — but don't be scared of credit

Having a delinquent account can be damaging to your finances. Missing payments could incur late fees, increase your interest rate, and you might get a negative mark on your credit report that lasts for seven years.

But don’t let the threat of delinquent accounts scare you from using credit altogether. When managed responsibly, credit is a valuable tool that helps you afford large purchases, like houses and cars, and cover emergency expenses.

Still not sure about using credit? We’ve busted six common credit-building myths to help you feel more confident about starting your credit journey.

FAQs

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 seven years from the date they happened.3 Even if you make late payments to settle the account, the delinquency will stay on your credit report.

How do I remove delinquent accounts from credit reports?

A delinquent account will typically fall off your credit report after seven years. If you realize that a reported delinquency wasn’t removed when it should’ve been, you can file a dispute with the credit bureau in question.

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 those 30 days are up, lenders and creditors may not report it to the credit bureaus as delinquent.

How do I fix a delinquent account?

To fix a delinquent account, you’ll need to pay what you owe quickly. The longer you wait, the more late fees you might incur.

Plus, lenders can report delinquencies as 30, 60, 90, or 120 days late.4 While these are all bad on your credit report, a 30-day delinquency isn’t as bad as a 120-day delinquency.

What does a delinquent account mean?

Financial terminology can be confusing, especially if you don’t have a personal finance background. Here’s a simple delinquent account meaning: A delinquent account is one in which you have borrowed money and not paid it back on time, as agreed upon in the terms and conditions of the account.

For instance, your minimum monthly credit card payment might be $25. If you miss the payment – or don’t pay at least $25 – the account becomes delinquent. You may incur late fees for this, and the lender may report the delinquency to the credit bureaus, which can cause your credit score to drop.

Can delinquent accounts be removed?

Delinquent accounts typically stay on your credit report for seven years. After that time, they should fall off your report.

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1 Information from myFICO's “How Credit Actions Impact FICO Scores" as of June 5, 2023:https://www.myfico.com/credit-education/faq/affects-of-credit-actions

2 Information from the FTC's "Fair Debt Collection Practices Act" as of June 20, 2023:https://www.ftc.gov/legal-library/browse/rules/fair-debt-collection-practices-act-text

3 Information from the Fair Reporting Credit Act as of June 5, 2023:https://www.consumer.ftc.gov/sites/default/files/articles/pdf/pdf-0111-fair-credit-reporting-act.pdf

4 Information from Credit Karma's “Dealing with delinquent accounts" as of June 5, 2023:https://www.creditkarma.com/credit-cards/i/what-is-a-delinquent-account

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