Delinquent Account

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Blog Author :

WallStreetMojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

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Delinquent Account Meaning

A delinquent account is an account that has not been paid even after the due date of the payment has been passed for that account. It is that account that is marked as delinquent for which the account holder does not pay the outstanding value by even one day over the due date of the required payment. Generally, banks do not mark an account as delinquent so early and immediately. They send you reminders before making the account a delinquent one. Nowadays, banks consider two late payments to term an account as a delinquent account.

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Delinquent Account Credit Report

The effect of a delinquent account of a consumer has a very adverse impact on the consumer's Credit report. Once an account is termed as a delinquent, then such an account can take almost seven years to remove the effect of delinquency from the consumer's credit score. There are also cases of multiple delinquencies of a consumer. The longer the delinquencies stay in an account, the more severe would be its effect on the credit score. For example, let us say a person has multiple delinquencies in his account, and therefore his score could drop as much as 150 points.

The delinquency does go away with the payment of the outstanding amounts. It stays in the credit score for up to 7 years. Even making full payments and clearing off the entire loan dues will not release the effect of delayed payment or nonpayment of the loan. Therefore, consumers should stay away from the delinquency of the accounts.

Delinquent-Account

Causes

An account is termed a delinquent account only when it is a late payment or skipped payment.

#1 - Late Repayment

In case of loan repayments, if the consumer makes any late payment of the installments, be it in case of a car loan, home loan, business loan, or personal loan, if a person is involved in the late repayment of the loan. He would be called a delinquent account holder.

#2 - Non-Payment

In case of non-payment of the loan amount even after the reminders from the Financial Institutions, it causes a regular account to be converted to a delinquent account. It affects the credit score of such consumers adversely and creates a considerable fall in their Credit Score. They will not be able to apply for or avail of any loan from any financial institution in the future.

#3 - Non Payment of Credit Card Bills

Non-payments of the Credit card bills also make the account a delinquent account. Suppose a Credit Cardholder does not pay the minimum amount due for over 30 days even after the expiry of the due date for clearing the bills. In that case, such a Credit Cardholders account will be converted and marked as a delinquent account.

Delinquent Account Examples

  1. Outstanding Car Loan Account for six months;
  2. Outstanding Home Loan Account for one year;
  3. The minimum outstanding amount on a Credit Card is a Delinquent Credit Card;
  4. Non-payment of a personal loan EMI;

Effects of a Delinquent Credit Card

If a credit card is delinquent for more than 60 days, then the Credit Card Company can begin a legal process against the credit card holder to collect the outstanding amount on the credit card. The cardholder has to clear all the dues to save himself from the legal proceedings. There would be various penalties imposed on the cardholder and a substantial interest portion on the outstanding amount.

The credit card companies also take the help of the third parties to get their dues cleared from the holders, which will force the holder to sell off its stake, property, holding, and investments to clear off the dues. To remove delinquency from his credit card, the holder must clear the minimum amount due to be paid as a first step. It will help him somehow from the delinquency of the account but would not be able to assist in the interest which would be charged to the consumer on the outstanding balance amount.

How to Deal with the Delinquent Account?

  1. Once you identify the delinquent account, also identify the outstanding amount to be paid. Ensure that the delinquency has taken place only because of the non-payment of the outstanding amount and not due to a systematic error. If you have made the payment, and it is not reflected in the account due to the system error, go ahead to the Financial Institutions with the payment proof and get your delinquency cleared.
  2. If a consumer cannot pay the outstanding amount monthly, he should opt for a lump sum payment and utilize its bonuses, increments, etc., to clear the loan amount. Consumers should make as many attempts to clear their outstanding loans as possible to keep themselves relieved from the substantial amounts of interest.
  3. Suppose the consumer cannot pay their loan in a lump sum. In that case, the consumer should inquire with their lenders and request them to convert his loans into smaller installments to avoid the massive interest liability on him and be able to pay such small installments.
  4. If any of the above doesn’t work, then the consumer should go for settling the account and think of an amount that he can pay in full settlement of the amount. This step will not help the consumer remove the delinquency mark on his account but will help the consumer not pay the substantial interest on the outstanding amount.