Delinquent credit card debt is stressful for you and disastrous for your credit. Each month a balance remains delinquent, it damages your credit score. This guide explains how credit card delinquency works and what you can do to overcome it.

What is credit card delinquency?

Credit card delinquency happens when you don’t make the minimum required payment on your credit card by the due date. Delinquent credit card debt is just a fancy name for past-due debt or overdue debt.  It basically means that you’re behind and you need to catch up.

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How credit card delinquency works

The impact of past-due credit card debt gets worse the longer the balance remains delinquent. A balance that’s only a few days overdue will only have a minimal impact on your finances in the form of late fees. But a balance left unpaid for more than 30 days will start to affect your credit. Here’s how it works:

  1. If you don’t pay the required minimum payment by the billing due date, your credit card is considered past-due. The credit card company will immediately apply late fees.
    1. The maximum late fee if you’ve never missed a payment before is $25.
    2. If you’ve missed a payment within the past six months, the late fee can be up to $35.
  2. Once your bill is more than 30 days late, it’s considered a missed payment. Now you are 30 days delinquent.
    1. By law, the creditor can now report the credit card delinquency to the credit bureaus. However, most credit card companies will not report the delinquency until you have missed the payment by 60 days.
  3. Things get worse once your balance is more than 60 days delinquent. If you haven’t made a payment in 2 months, two things will happen:
    1. The credit card company will report the delinquent account to the credit bureaus, the missed payments will show up in the credit history section of the account on your credit report.
    2. The creditor will also start to apply penalty APR. These rates are much higher than your standard interest rate. Penalty interest rates average 29.99%.
  4. Once the credit card company starts reporting delinquent payments to the credit bureaus, you must catch up and bring your account current to fix your credit history.
  5. If you continue to miss your payments, you have nine months where the account will remain delinquent. After nine months, the creditor will charge off your account. The account will be frozen and sent to either an in-house collections department or it will be sold to a third-party debt collector.

Digging out of the credit hole caused by delinquent credit card bills

Although creditors offer some leniency when you’re late initially, once they start reporting credit card delinquency to the credit bureaus, you end up in a hole. And digging out of that hole can be tough, especially when your finances are already distressed.

In order to stop past-due credit card debt from appearing as negative information on your credit history, you must pay the full delinquent amount to bring your account current. In other words, once you’re behind your credit history will stay behind until you catch up. Even if you make a payment, it won’t show that you did in your credit history. It will still show as delinquent.

This can have a huge negative impact on your credit score. Every month where the payment is listed as delinquent will ding your score. So, month after month, your credit score will take damage until you catch up.

What can you do to catch up?

If the financial hardship you faced was only temporary, then you need to make catchup payments. This involves paying as much of the delinquent balance on the line of credit as quickly as possible. For example, if your account became past due because you lost your job, once you get a new job you need to dedicate as much money as you can to bringing your account current.

If the financial hardship you’re facing is more long-term or caused by budget issues, then you may need to take more aggressive measures to catch up. The first thing you should do is call a nonprofit consumer credit counseling agency. This is a free service that can help you identify the best way to get out of debt for your unique financial situation.

  • If you only have a few delinquent credit card accounts but the rest are current, the credit counselor will usually recommend a debt management program. This is a professional assisted debt consolidation plan that repays your debt faster than you can with minimum payments.
  • If you have a lot of accounts that are behind and even some that are already charged off, then you may be better off with a debt settlement program. This focuses on getting you out of debt for a percentage of what you owe.
  • The credit counselor will also discuss bankruptcy if you’re facing severe financial hardship. They may recommend pre-bankruptcy counseling.

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Q:How common is credit card delinquency?

A: The Federal Reserve Bank of St. Louis tracks credit card delinquency rates and reports them every quarter. At the end of the first quarter of 2019 (end of March), the delinquency rate was 2.59 percent. That means between two to three accounts are delinquent for every 100 accounts that consumers have.

Credit card delinquency rates peaked at the height of the Great Recession in 2009. The rate topped out at 6.77 percent. Then it fell to a low of 2.15 percent in the first quarter of 2015. Since then, credit card delinquency rates have been gradually increasing. This is one reason that some economist fear we may be headed for another economic downturn.

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Article last modified on March 31, 2021. Published by, LLC