What is delinquent?

To be delinquent is to owe on an overdue debt. It may refer to an individual borrower or business with a contract specifying a payment schedule for a loan. Delinquency can negatively impact a borrower’s credit, and this gets worse the longer the balance remains unpaid.

Deeper definition

When a borrower lets a loan go unpaid, whether it’s a commercial, personal, or student loan, the loan is considered delinquent until the missed payments are repaid. This often carries a late fee dictated by the terms of the loan agreement and it could be flagged on the borrower’s credit history, hurting their credit.

Depending on the lender, the delinquent account may not be reported to the credit bureau until the account reaches a past-due date, usually between 30 and 90 days. Multiple missed payments can decrease a credit score by as much as 125 points and the delinquency remains on the borrower’s credit report for up to seven years.

But if the delinquency continues, the borrower could be considered in default, meaning the lender doesn’t expect the borrower to meet his payment obligations any time soon. While this has far more damaging credit implications, lenders often have a much longer grace period for default than they do delinquency. Defaulting on loans that are backed by collateral could mean losing property.

Struggling to keep up with loan payments? Consider refinancing the loan. Bankrate can help.

Delinquent example

JunkfoodSmash Inc., the makers of a popular gaming app, became delinquent on a commercial loan after missing a payment last December. After missing another payment, their creditor reported the business to a credit bureau. Now it’ll have more trouble getting loans or establishing a line of credit. Their creditor warns them that if they miss another payment, they’ll be in default. Wanting to avoid this unpleasant scenario, JunkfoodSmash makes all its payments, including the late fees, and climbs out of its hole.

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