The term 'delinquent' characterizes someone who still owes money on their financial commitments, such as loans, credit cards, or bonds. That person has failed to meet their payment due date, hence termed delinquent. This delinquency can be tagged to either individuals or corporations. And when left untreated, the dreaded default-the inability to bring the debt up to date-looms over.
The term 'delinquent' also refers to the neglect of duty by financial professionals. Therefore, the meaning is multifaceted depending on context. An individual or entity can slide into delinquency with just a missed payment on anything from income taxes to mortgages, auto loans, or credit card accounts. The stage sets as soon as an account is 30 days overdue.
Consequences of delinquency vary from the nature of the account, contract, and creditor. A string of delinquencies can slide the borrower into default. The implications could be as mild as late fee penalties in the case of delayed credit card payment or severe, such as foreclosure if homeowners can't keep up with mortgage payments.
Credit scores take a hit with delinquencies as payment history makes up 35% of the total score. The severity of this negative impact will depend on the frequency and consistency of late or missed payments.
Financial professionals can be delinquents too. Take for instance a conservatively-inclined client being led into investing in high risk stocks by their advisor, constituting a breach in fiduciary duties. Insurance companies neglecting their duty to alert universal life policyholders at risk of policy lapses also fit the delinquent description.
If a borrower consistently misses payments, it may lead to defaulting. The period of delinquency leading to default varies by lender and type of debt. For instance, the U.S. government allows student debt to be in delinquency for 270 days before pronouncing it in default. Residential mortgages usually reach serious delinquency after 90 days of non-payment, at which point foreclosure proceedings may start.
Borrowers can often work out arrangements with their lenders to bring delinquent or defaulted accounts up to date. But failure to do so could lead to consequences ranging from debt collection by third parties to legal proceedings by the creditor.
Delinquency rates offer insight into a lender's portfolio and refer to delinquent debt as a percentage of the total loans held by the lender. The lower the rate, the fewer clients are late with repayments.
For instance, in Q3 2023, data from the Federal Reserve shows the average rate for all loans and leases in the United States stood at 1.33%. Credit cards, with a 2.98% delinquency rate, topped for consumer loans.
Missing credit card payments can detriment your credit score. A handful of late payments could be manageable, but constant delinquency inevitably results in a score drop, affecting your future credit opportunities.
Lenders often offer a grace period after the due date during which payments, although incur interest, don’t attract late fees. However, a single day's delay post this period and you’re in delinquent territory.
A report by The Federal Reserve Bank of New York highlighted the severity of delinquency, indicating that U.S. student loans in delinquent status reached $146 billion by the end of Q4 2018, factoring in misreporting, the true figure may approach $300 billion.
In financial terms, delinquency marks a breach of duty by financial professionals or late payments by borrowers. But delinquencies reported to credit reporting agencies can be disputed and, under circumstances, even removed.
Measures can be taken to avoid delinquencies. Automatic payments and email invoices can be of help. Requesting lenders to align due dates with payday can be another useful strategy.
The bottom line? Delinquent status implies you're overdue on payments. It's a state one can remain in for 30 to 90 days based on the lender and the type of debt, but some preventive measures and timely communication with lenders can keep your credit score safe.