how being delinquent works
as noted above the meaning of the word delinquent depends on how it s being used in finance it commonly refers to a situation where a borrower is late or overdue on a payment such as income taxes a mortgage an automobile loan or a credit card account an account that s at least 30 days past due is generally considered to be delinquent 1the consequences for being delinquent vary based on the account contract and creditor too many delinquencies in a row can lead a debtor into default factors include the type duration and cause of the delinquency 2 for instance if you don t make your credit card payment you may have to pay a late fee mortgage lenders on the other hand can initiate foreclosure proceedings if homeowners don t bring their payments up to date within a certain amount of time 3delinquencies also affect your credit rating your payment history is a major consideration in calculating your credit score in fact it makes up 35 of the total score so being delinquent can drag it down keep in mind though that a few delinquent payments may not make a huge impact but it will if you are consistently late or don t pay at all 4special considerationsdelinquency also describes a dereliction of duty or neglect by a financial professional for example a registered investment advisor who puts a conservative income oriented client into a highly speculative stock could be found delinquent in his fiduciary duties if an insurance company fails to warn a universal life policyholder that their policy is in danger of lapsing due to insufficient premium payments it could be considered delinquent 5most people are familiar with the legal definition of delinquent which is commonly used to describe someone usually a younger individual who commits minor crimes 6delinquent vs defaultdelinquency occurs as soon as a borrower misses a payment on a loan being consistently delinquent can lead to default default occurs when a borrower fails to repay a debt as specified in the original contract most creditors allow borrowers to remain in delinquency for some time before it is considered to be in default the length of time it takes to go into default varies based on the lender and the type of debt 7for example the u s government allows student debt to be delinquent for 270 days before declaring it to be in default 8 most lenders consider single family mortgages seriously delinquent if they are 90 days behind in payment after which they are in default and subject to foreclosure 39lenders often work with borrowers to help bring delinquent or defaulted accounts up to date which means you may be able to bring your account up to date the lender may not take any other action if you can come up with a suitable arrangement keep in mind though that significant delinquencies and defaults will affect your credit score 7if you can t make a payment arrangement during default the lender may proceed with further action for instance your account may be sent to a third party agency for collections if you still can t pay the creditor may pursue legal action and seek judgment against you if the debt is secured the lender can sell the security and pay off the debt you may still be liable for any remaining balance or additional fees read your contract to find out how long it takes for your lender to consider you in delinquency and in default current and historical delinquency ratesthe delinquency rate is the amount of debt that is past due this rate is expressed as a percentage and is generally used to characterize a financial institution s lending portfolio delinquency rates are calculated by dividing the total number of delinquent loans by the total number of loans held by a lender lower delinquency rates mean fewer people are late on their payments the federal reserve tracks delinquency rates in the united states every quarter as of the third quarter of 2023 the average rate for all loans and leases was 1 33 residential real estate delinquencies were highest with a rate of 1 72 while credit cards topped the list of delinquency rates for consumer loans at 2 98 the rate has steadily dropped since the recovery period following the 2007 2008 financial crisis for instance the overall delinquency rate during the first quarter of 2010 was 7 4 which included rates of 11 54 and 5 78 for residential real estate and credit cards respectively 10delinquent credit cardscredit card delinquencies happen when you fail to make your regular monthly payments these intervals are normally divided into days you are generally considered delinquent if you re 30 days past due although some lenders wait until you re 45 or 60 days to report late payments as being delinquent remember being delinquent impacts your credit score a few late payments here or there won t make a major dent in your rating but multiple delinquencies will add up to a lower score you can expect to take a big hit if you have three to four missed payments especially if they occur in a row this can prevent you from getting credit in the future 11delinquent loansloans work a little differently than other types of debt when you sign up for a loan you agree to repay the lender a specific amount of money at regular intervals until the debt is paid off the lender determines the due date and in some cases may allow you to set this date based on your personal financial situation most lenders also include a grace period which may be a few days after your due date if you make your payment on or before this date it may not be considered late but you may still incur interest but not a late payment fee if you fail to make the payment before you are considered delinquent your loan is in delinquent status even if you make your payment a day or two after the due date real world example of being delinquenthere s an example of what it means to be delinquent the federal reserve bank of new york found that in the fourth quarter of 2018 delinquent u s student loans reached 146 billion however the bank stated that delinquency rates for student loans are likely understated by as much as half meaning that about 300 billion of student loan debt has not been serviced in at least three months as of the end of q4 2018 this figure underscores the true extent of the student loan crisis 12