What Does a Delinquent Loan Do to Your Credit Score?
Getting behind on loan payments can be damaging to your credit score. The exact impact will vary by the type of financing involved and its particular lender.
The terms payment delinquency and default are used to describe different degrees of being past due on a loan. The resulting impacts can be significant, long term and difficult to recover from.
Delinquency
A person is delinquent on debt if he or she misses a scheduled payment, typically one that appears on a monthly credit card statement. The creditor usually reports this to the credit bureaus when it happens. Most creditors allow a grace period, which gives the borrower a few days to make the missed payment and avoid late fees.
When a person is delinquent on debt, the credit score can drop significantly as a result. The number of points that the score drops will depend on how many days are passed since the last payment was made. For example, a missed payment for 30 days may cause a score to drop 80 points.
In addition to the drop in the credit score, a delinquent account can lead to increased stress and a higher risk of default. It’s also difficult to secure new loans or credit cards when an account is in delinquency, and if it does get approved, the loan will likely have a higher interest rate than those of other borrowers with good credit scores.
The term delinquency is also used for certain criminal offenses, especially those committed by juveniles. A 15-year old might be a delinquent by skipping school to hang out with friends and drink alcohol, for example. Unlike a status offense, a criminal delinquency can lead to a prison sentence if it is serious enough.
Default
As the name suggests, 연체자대출 default is the worst situation a person can find themselves in regarding their loans. It is a severe breach of contract and will greatly damage your credit score and future ability to borrow money. The exact point at which a loan goes from delinquency to default varies depending on the lender and the type of financing you have, but it usually occurs after a period of several missed payments.
When a loan reaches the point of default, you will be unable to bring it current by making up the missing payments. You can avoid default by contacting your lender before it happens and working out a payment plan. This will be a much more reasonable approach than just going straight to the collection agencies, which can be costly and difficult to navigate for most people.
Defaulting on a loan can cause your credit score to drop drastically and can even lead to your lender seizing your personal property. Fortunately, it is rare for lenders to take this action. Typically, they will work with you to create a payment plan and can often lower the EMI amount to make it more manageable for you to pay. This way, you will still be able to repay the loan but won’t have to deal with the stress of a defaulted loan.
Collections
Once a debt becomes delinquent, it can then be sent to collections. This happens when the creditor gives up on trying to collect the debt directly from a borrower, and usually occurs after more than one missed payment (although each missed payment will affect your credit score negatively). When debts go to collections, they can remain on your report for seven years. This can make it hard to take out new loans or credit cards, and will have a significant negative impact on your credit score.
When a 적금계산기 goes to collections, it will probably be sold or transferred to another third-party collection agency. Lenders will still contact you to try and get the money that is owed, but the debt collectors will have more leeway when it comes to the amount they can collect. The lender can also charge extra fees, and the interest rate on the debt can increase dramatically.
Generally, it is best to settle the debt with the original creditor before it gets sold or relegated to a collection account. A successful settlement should stop the account from being updated and can allow it to age properly on your report, which will help your credit score. The best way to avoid getting a debt in collections is to stay current with your payments. If you’re struggling to pay your bills, it might be a good idea to talk with a financial counselor to see if they can help.
Damage to Credit Score
The longer a loan stays delinquent, the more damage it can do to your credit. Missed payments are the biggest factor influencing your credit score, so a significant delinquency can significantly lower it. This can make it difficult to qualify for loans or rent a home or apartment, and may also lead to higher interest rates.
Lenders typically consider an account delinquent once it’s more than 60 days past due. However, it’s important to understand that this is a generalization and individual lender policies may vary. In most cases, lenders will notify you if a payment is going to be late.
If a debt goes unpaid, it’s often sold to a collection agency. These organizations are known for using aggressive tactics to track down borrowers and try to collect what is owed. Depending on the type of debt, defaulting can lead to foreclosure or repossession of assets, including your car or home.
Debt collections and charge-offs both have severe negative effects on your credit score and can make it difficult to qualify for new loans. They will remain on your report for seven years and can have a devastating impact on your ability to borrow money in the future.
