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A delinquency refers to a borrower being more than 30 days late with a mortgage or interest payment.
While there are are negative connotations with the word delinquent, it must be noted that it’s just a word lenders use to describe overdue payments and borrowers should not take this label personally.
When an account is past due because the obligated payments were not made, it makes a lender sit up straight and monitor the situation more closely.
And if the delinquent account hits a certain milestone, they start to contact the customer about it.
This is because the job of collection is part and parcel of a lending business.
Attending to potential problems early can help to recover more money than to attend to it only after a financial problem becomes full blown.
Despite this, delinquencies are actually very common with consumers for products like credit lines, personal loans, payday loans, etc.
And the root causes are due to oversights and carelessness on the part of the borrowers.
Depending on the terms of the contract, lenders might charge penalty fees for late payments and even additional interest that compounds if left unpaid.
When reviewing an individual’s credit report, delinquencies will undoubtedly negatively affect credit score.
However, how long the borrower had been delinquent will affect the impact it would have.
For example, a payment 60 days past due will have a more severe impact on credit score compared to one that is 30 days past due. Lenders are even known to deny loan approvals for applicants when there is just one credit card that is 90 days past due with everything else being perfect.
From the lender’s perspective, there is just no reasonable justification for someone to be late with a debt obligation for over 90 days without being in financial distress.
When a payment is late by over 90 days, lenders can also categorize it as a default or a breach of contract.
That can change the whole dynamics of how the lender communicates to the borrower.