What Does Delinquent Mean?
The term delinquent refers to the state of being in arrears. When someone is delinquent, they are past due on their financial obligations, such as a loan, credit card, or bond payments. This means a borrower’s payments are not made to satisfy their debts in a timely manner. Delinquent entities can be either individuals or corporations. Financial delinquency often leads to default if the arrears aren’t brought up to date.
The term may also be used to describe the failure to perform a duty by financial professionals.
Key Takeaways
- Being delinquent refers to the state of being past due on a debt.
- Delinquency occurs as soon as a borrower misses a payment on a loan, which can affect their credit score.
- Delinquency rates are used to show how many accounts in a financial institution’s portfolio are delinquent.
- Consistently delinquent borrowers end up in default.
- Financial professionals who fail to live up to their duties and responsibilities are considered delinquent.
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.
The consequences for being delinquent vary based on the account, contract, and creditor. Too many delinquencies in a row can lead to rather disastrous events in your financial life. Factors such as the type, duration, and cause of the delinquency matter a lot. 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.
Delinquencies also affect your credit rating as they make up 35% of the total score, so being delinquent can drag it down. A few delinquent payments may not make a huge impact initially, but consistent late payments will deteriorate your credit score.
Special Considerations
Delinquency 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. Similarly, an insurance company failing to warn a policyholder about the lapsing status of their universal life policy could be considered delinquent.
Most people could also come across the legal definition of delinquent, a term usually reserved for younger individuals committing minor crimes.
Delinquent vs. Default
Delinquency occurs as soon as a borrower misses a payment on a loan. Being consistently delinquent can directly cause a situation leading to default. Default happens when a borrower fails to repay a debt as specified in the original contract. Most creditors allow borrowers some leeway to remain in delinquency before declaring default. This time frame can vary based on the lender and the type of debt.
For instance, student debt in the U.S. can be delinquent for 270 days before being declared in default. In the case of single-family mortgages, they are considered seriously delinquent if they are 90 days behind in payment, after which they enter default and could face foreclosure.
Lenders often work with borrowers to help bring delinquent or defaulted accounts up to date through suitable arrangements. Significant delinquencies and defaults, however, severely impact your credit score. Continued delinquency may lead to the account being handed over to a third-party collections agency, and potential legal actions from the creditor.
Current and Historical Delinquency Rates
The delinquency rate is the amount of debt that is past due. This rate is expressed as a percentage and generally characterizes 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 rates signify fewer late payments.
As of the third quarter of 2023, the average U.S. rate for all loans and leases was 1.33%. The highest delinquencies were in residential real estate at 1.72%, while credit cards had a delinquency rate of 2.98% for consumer loans. The rate has significantly reduced since the 2007-2008 financial crisis, where the overall delinquency rate hit 7.4% during the first quarter of 2010.
Delinquent Credit Cards
Credit card delinquencies occur when you fail to make your regular monthly payments on time. Timescales are divided into days, and being 30 days past due generally marks delinquency, though some lenders may wait until you’re 45 to 60 days late.
Being delinquent impacts your credit score negatively. It’s a manageable hit with just a few late payments, but multiple consecutive delinquencies add up, significantly lowering your score and affecting future credit prospects.
Delinquent Loans
Loans, however, are treated differently. When you get a loan, you agree to repay a specific amount within a determined interval. Missing the due date means you are delinquent even if it’s just by a couple of days.
Lenders provide a grace period to avoid immediate penalties, which helps scammers from the***ulating complications of recurring late fees.
Real-World Example of Being Delinquent
Here’s what delinquency really looks like. For example, in Q4 2018, U.S. student loan delinquencies touched $146 billion, according to the Federal Reserve Bank of New York. With a rough estimate that delinquencies likely soared as students increasingly delayed servicing loans.
What Is an Act of Delinquency?
The idea of delinquency can take many forms. In finance, it’s merely the state of being late on financial obligations such as debts. Other domains, like fiduciary responsibilities, define negligent or poor advice from financial advisors as delinquent activities.
Can a Delinquency Be Removed?
Indeed! Report delinquencies to get potential updates on your credit report. Options include online dispute or through written communication to both credit bureau and lender.
How Can You Prevent Delinquency?
Avoid delinquencies by signing up for automatic payments or receiving e-billing notifications. You can also align your payment dates with your income schedule.
What Is a Delinquent Status?
Delinquent status signifies falling behind on payments, a variable amount dependent on lender and debt type, usually ranging between 30-90 days.
Related Terms: arrears, past due, bond, default, credit rating, late fee, foreclosure.
References
- Consumer Financial Protection Bureau. “The Early Effects of the COVID-19 Pandemic on Consumer Credit”. Page 9. Footnote.
- Experian. “How Does Default Impact Your Credit?”
- U.S. Department of Housing and Urban Development. “Foreclosure Process”.
- myFICO. “What is Payment History?”
- U.S. Department of Labor. “Fiduciary Responsibilities”.
- Collins Dictionary. “Delinquent”.
- Experian. “What’s the Difference Between Delinquency and Default?”
- Federal Student Aid. “What are Loan Delinquency and Default?”
- Consumer Financial Protection Bureau. “2021 Mortgage Servicing Rule”. Page 6.
- Board of Governors of the Federal Reserve System. “Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks”.
- Experian. “When Do Late Payments Become Delinquent?”
- Federal Reserve Bank of New York. “Quarterly Report on Household Debt and Credit; 2018: Q4 (Released February 2019*)”. Page 2.
