Credit Card Delinquency [What Is It and How to Avoid It]
Last Updated: February 2, 2023
The art of managing credit card debt isn’t always easy to master.
Roughly half (47%) of adult Americans currently own a credit card, and a good portion of them struggle to repay their debts regularly and on time, leading to credit card delinquency. The implications of delinquency aren’t pretty—getting stuck with this status can be detrimental to your financial situation and credit score.
Whether you’re currently facing delinquency status or just want to be informed, you’ve come to the right article. Besides explaining what being delinquent on a credit card means, we’ll also talk about its effects, how to fix it, how to remove a delinquency record from your credit report, and lastly, how to avoid it.
What Is Credit Card Delinquency?
Each credit card comes with a certain amount of money available for you to spend (as long as it’s within the credit line). That money isn’t yours, but you are allowed to use it as long as you’re making a monthly effort to return it.
By “monthly effort,” we are referring to a minimum payment you have to make each month to keep your account in good standing. You can pay more than that if you want to avoid high-interest rates, but only the minimum payment is a requirement and a factor in delinquent debt. Being a few days late with your payment won’t result in any severe consequences, but you might have to pay additional fees.
A credit card becomes delinquent once its owner falls behind on its payments—more precisely—once the payment is past due 30 days or more. Failing to meet the minimum payments means breaking the terms of the agreement with the lender, resulting in a delinquent credit card.
The Stages of Delinquency
Even though your credit card technically becomes delinquent after 30 days, the information gets reported to credit reporting agencies after two consecutive missed payments. This gives you a bit of leeway to sort the issue out before you suffer any consequences that will negatively affect your credit score and make any future loan harder to obtain.
After missing your payments for three to four months, your account will likely be suspended or even revoked, meaning that even if you pay off the debt in full, you can no longer use the account. You can try to reverse the suspension by paying the total minimum amount you owe as well as any additional late fees. If you don’t have the financial means to pay off everything you owe, you can consult your creditor and work out a customized repayment plan.
If you don’t make any payments for around five months, your delinquent credit card will likely go into collections, and legal action may be taken against you.
The final consequence (after six months) is that your account will be charged off. If your account gets charged off, this is the worst thing that can happen to your credit besides foreclosure and bankruptcy. When this happens, the debt is no longer categorized as an asset, but as a loss, and you lose the opportunity to bring your account current by catching up on your payments. However, you are still expected to pay the total amount. A charge-off is the final stage of delinquency.
What Are the Effects of Credit Card Delinquency?
The later you are with your payments, the greater consequences you suffer. Getting the delinquent status on your credit card has two main effects: it increases your interest rates, and your credit score suffers.
Increased Interest Rates
As your delinquent status progresses, your regular interest rate is replaced with a much higher penalty rate, making it even harder to pay off.
The penalty rate usually applies after 60 days of delinquency and remains in effect for six months. Once you make six consecutive on-time payments, you can request an interest rate reduction.
Negative Impact on Your Credit Score
This is where credit card delinquency brings the most consequences. It can have a severe impact on your credit score, and that impact grows the longer your credit card is delinquent. Years can pass until the situation gets back to normal, so make it your priority to stop the delinquency from progressing or to avoid it altogether.
Here are some other things that can negatively affect your credit score:
Even without venturing into delinquency territory, a delayed payment can affect your credit score. It impacts your credit history, which makes up 35% of your credit score. The longer the payment is delayed, the more substantial effect it has on your credit score.
Getting Reported as Delinquent
Even though your credit provider might not immediately report you to the credit bureaus, they will surely do so after you miss your payments for two months. Delinquencies affect your credit score negatively.
Account Going Into Collections
Here is yet another factor that can affect your credit score. However, its effect depends on your credit score—the higher your score, the bigger the impact. Don’t underestimate the effects on lower credit scores as well.
Account Getting Revoked
Even if you eventually pay off what you owe, some creditors may simply choose to close your credit account. Getting your credit card closed due to delinquency can have a detrimental effect on your credit score because it increases your credit utilization ratio, which makes up 30% of your score.
Account Being Charged Off
A charge-off can have a significant adverse effect on your score as well as your financial future; it’s somewhere in the same field as a bankruptcy or a foreclosure. Besides being immensely damaging to your credit score, it also stays on your credit report for up to 7 years, so do your best to avoid it.
How to Fix Credit Card Delinquency
We won’t lie—getting out of delinquency isn’t easy, and fixing its impact on your finances is even more challenging. It’s not impossible, though. Be prepared to invest some time and effort, and eventually, you’ll start seeing the light at the end of the delinquency tunnel.
We’ll help you start the healing process by offering a few tips:
Contact Your Credit Card Issuer
The very first thing you should do is contact your credit card issuer. They might be open to working out a custom pay plan with you—their cardholder—which would make the repayment process much easier for you. Credit card delinquency rates have decreased during the ongoing pandemic, making creditors especially sympathetic during this period.
Focus on the Minimum Payments
Stopping the progress of your delinquency should be your top priority. You may think that only one minimum payment won’t have a significant impact, but we disagree. To give you an example—keeping your delinquency at 90 days instead of 120 days can be the thing that prevents your account from being revoked.
Use Your Money Wisely
Instead of paying one minimum amount, plus some extra, pay only the minimum and keep the rest until you have enough to make another minimum payment towards your delinquent debt. You might think you’re contributing by returning as much money as you have, but if it isn’t enough to cover the minimum payment, it won’t make a difference to your status. One minimum payment keeps your status from progressing, but two of them decrease it.
How to Remove Serious Delinquency on a Credit Report
The main victim of a delinquency ordeal is always your credit score and credit report. These are essential indicators of your financial situation and if they are bad, this can be a deal-breaker in many situations. So, it’s logical to be concerned about your credit after going through delinquency.
Unfortunately, we have bad news—no matter what you do, your delinquency will stay on your credit report for up to 7 years. However, the good news is that as more time passes, its negative impact lessens.
Even though you can’t remove your delinquencies from your credit report, there are some things you can do in the meantime. The keyword for improving your credit report is “diluting.” You need to dilute the negative with the positive to balance it out, with the goal of the positive overpowering the negative one day.
Although this may sound counter-intuitive, start by taking out a secured credit card. Having a credit card is a great way to show fiscal responsibility, as the credit bureaus track your card usage information regularly. Even if you just get a card and only maintain it at a zero balance, it can still have a positive impact. A secured credit card requires you to provide a cash security deposit that serves as your line of credit, making it easier to obtain.
Finally, of course, it goes without saying that you should also keep all future payments up to date to avoid repeating the same mistakes and the adverse effects that come with them.
How to Avoid Credit Card Delinquency
You don’t need to fix something that isn’t broken, so try not to break it in the first place. The rule applies to credit card delinquencies as well.
Avoiding delinquency is possible—in fact, millions of people are doing it. However, we don’t want to ignore the various factors preventing you from making your payments on time. Unexpected events can have a massive impact on your financial security, whether it’s the loss of a job, a robbery, or even a worldwide pandemic.
Whatever the case, following the tips below can help you make better financial decisions.
Make All Payments on Time
We don’t enjoy being Captain Obvious here, but this is a given. There are no other causes of credit card delinquency besides missed payments. Make an effort to at least cover the minimum payments regularly. This brings us to our next tip:
Set Up Autopay
Sometimes the solution can be as simple as automating your payments. Life can be hectic and ridden with distractions, often resulting in missed payments. This is the easiest solution on our list of tips, especially if the problem isn’t financial but just the result of forgetfulness.
Stop Spending on Your Credit Card
If you’re already experiencing financial issues with your card and are at risk of missing your payment, don’t make matters worse by spending even more money that you can’t return. This can quickly add up to your delinquent debt.
Know the Limits of Your Credit Card Use
You need to learn how to use your credit card responsibly. Make sure you don’t overspend on things you can’t afford.
If You’re Having a Hard Time, Call Your Credit Card Company
It’s not unusual for credit companies to be open to working with you if you’re in a bad financial situation. You can work out a customized repayment plan or look at extended payment options. Whatever it is, it’s better than just sweeping the issue under the rug and waiting for it to resolve itself magically.
Take Out a Personal Loan
If all else fails, you can always take out a loan to settle your missed credit card payments. Some lenders have no problem helping clients with bad credit get out of debt.
Even though credit card delinquency statistics show a sharp decline in delinquency rates in 2020 due to the pandemic, it has enjoyed a steady rise over the years and will continue rising after things settle down.
This issue can significantly set you back financially and require a lot of effort and time to rectify—we’re talking years. Keep close watch over your payments, make sure you pay everything on time, and don’t overspend. Feel free to reach out for help when you need it, and face any financial issues early on to avoid harsher consequences in the future.
A credit card delinquency stays on a credit report for up to 7 years. Unfortunately, there is nothing you can do to remove it beforehand. The good news is that as more time passes, its negative effect lessens as well.
Before applying for a secured credit card, make sure you fit the requirements of the card issuer. Make sure you have enough funds for the required deposit as well as a steady stream of income. Your credit score will probably have been affected by the delinquency, but do your best to improve it.
Pay your bill in monthly payments by the due date given by your credit card issuer. Being even a day late puts you in danger of credit card delinquency and/or high late fees.