A delinquency occurs when a borrower is late on payment for more than 30 days past due.
Minor delinquencies on personal loans or credit cards are actually very common among consumers.
Not that borrowers have the intention to delay or hold back payment. But sometimes people are too busy with work, leisure or travels and forgets to pay the minimum obligations of a debt.
This is why even though basic delinquencies of 30 days overdue will call for the attention of lenders and creditors, they don’t really raise any eyebrows until a delinquency hits more than 60 days.
This essentially means that a debtor or credit card holder has not repaid their required payments for two consecutive payments periods (or months).
Financial institutions usually take this as a more serious alert of someone who is potentially in financial trouble.
A more prolonged debt that has not been serviced presents a higher credit risk to lenders.
Having mentioned that, a borrower can easily make full payment of what is due plus any late payment charges, and have the loan status be reverted back to normal as before.
An account that is more than 90 days past due would be a serious red flag.
Credit record
While not as severe as a default in the eye of a lender, delinquencies nevertheless will negatively impact a person’s credit record.
This can in turn, have adverse effects when an individual applies for other types of loan or credit facilities.
For example, if the director and shareholder of a small business tries to apply for an unsecured business loan, his credit history would be generated from the credit bureau by lenders for assessment. A recent prepayment history of delinquencies is not going to do the applicant any favors in terms of loan approval.
Even if the tabulated credit score based on information contained in the credit report meets the minimum criteria for loan approval, the applicant might not be able to qualify for the largest credit line or the best interest rates.
One reason why some borrowers of the same product can get different interest rates is the difference in credit scores.
Generally speaking, between two people with the same credit facilities in their name, the one without delinquencies would have the higher credit score among the two.
This indicates that he or she would be a more preferred customer by a lender.
Prolonged delay in payments can lead to default.
Default
Different types of credit loan facilities can have different terms on what constitutes to a default.
This means that while loan product that is 61 days over might be considered a default, a different type of loan might still categorize it within a delinquency period.
Something else to note that is there is no standardization system of putting people under defaulter category.
It is really down to a lender.
A borrower can technically go as much as 180 days past due, and even longer, and not be in delinquency or default as long as a lender decides against it.
However, this would be unethical and irresponsible behavior as other lenders depend on the most current credit records of a borrower to underwrite credit facilities.
If delinquencies and defaults are not reported to the credit bureau, lenders would be exposed to higher risks as they would not know that a borrower is already in financial trouble before approving a loan.
