What is Delinquency?

Delinquency is the failure of making a payment against an obligation. Delinquency occurs when payment for a loan or any other financial obligation is past due. Exactly when the obligation is marked as delinquent might vary depending upon the type of the obligation. For example, in case of consumer installment loans, missing three successive payments might make the loan account delinquent. If we take the example of credit cards, a 30 to 45-day grace period is the norm after which the account is marked as delinquent.

What are the ramifications of Delinquency?

One major impact of defaulting on your credit obligations is increased repayment amount. The defaulter, in almost all cases, ends up paying a significant amount of a penalty or late payment fees. However, the impacts of delinquency are not only restricted to just late payment fines. Defaulting on your loan will hamper the credit rating making it increasingly difficult to obtain credit or loans going forward. There is more bad news to follow. Nowadays, most employers run a credit check on applicants before hiring, and a bad credit score can cripple the chances of getting a job severely. Further, if the defaulter works independently and needs a license to practice his/her profession, there is a possibility that the license might get revoked. To sum up, defaulting on your credit obligations can have the following consequences:-

  • Your credit score will get impacted severely making it increasingly difficult for you to acquire fresh loans or credits going forward.
  • You will end up paying a significant amount of money as late payment fees.
  • If you are a professional who practices independently and need a license to practice, there is a possibility that the license might get revoked.
  • If prospective employers run a credit history check that happens to be the case quite often, the default will show up creating a negative impact.
  • Your savings and/or checking accounts might get sealed

As it should be quite clear by now, delinquency is something not good to have in your credit history and should be avoided by all means if possible.

Managing Delinquency

“Prevention is better than cure” – is how the adage goes. Before taking a credit, you should do a thorough assessment of your circumstances and ask yourself whether you can afford the loan. Do not take any decision in haste- think it through before even applying for the loan. On the other hand, once somebody has already defaulted on an obligation, there is a common disposition to hide the problem or to procrastinate which will further complicate the matter. When you discover that you are in default of a payment, you should get in touch with your lender immediately. In most of the cases, a mutually beneficial agreement can be worked out by simply just communicating. Finding out the cause is very important, and it is extremely important to note that finding out the root cause of the problem is of greater preponderance rather than trying to fabricate a temporary solution immediately.