What Are Delinquencies on a Credit Report?
Understand what delinquencies are on a credit report, their significance, and how these marks shape your financial standing.
A credit report serves as a detailed record of an individual’s financial history, encompassing information about credit activity and current credit accounts. Lenders, employers, and other entities utilize these reports to assess financial trustworthiness and make decisions regarding loans, insurance, or employment. A credit report outlines the types of credit used, the duration accounts have been open, and whether bills have been paid on schedule.
A “delinquency” refers to a missed or late payment on a credit obligation. This occurs when a borrower fails to make a payment by the agreed-upon due date.
Understanding Delinquencies on Credit Reports
A delinquency on a credit report signifies that a payment for a financial obligation, such as a loan or credit card, was not made by its due date. This status can arise as soon as a borrower misses a payment. The severity of a delinquency is measured by how many days past due the payment is.
Common stages include 30, 60, 90, 120, 150, and 180 days past due. As the number of days increases, the delinquency becomes more severe. A 30-day late payment is the initial stage, with subsequent stages reflecting continued failure to pay.
A delinquency differs from other negative credit marks like charge-offs or collections. While these often stem from prolonged delinquency, they represent distinct reporting statuses. A charge-off occurs when a creditor deems an unpaid debt uncollectible, after several months. A collection status means the debt has been sold to a third-party collection agency or assigned to an internal collection department. Delinquency specifically denotes a late payment on an active account before it reaches these more severe stages.
How Delinquencies are Recorded
Creditors, including banks, lenders, and utility companies, regularly report payment history to the three major credit bureaus: Equifax, Experian, and TransUnion. This reporting includes instances of late payments, which then appear as delinquencies on an individual’s credit report. Not all creditors report to every credit bureau, but most significant financial accounts are reported.
A delinquency record on a credit report contains specific information about the late payment. This includes the type of account that became delinquent, the name of the creditor, and the original date the account was opened. The record also details the precise date the account became delinquent and the amount that was past due.
The payment status, such as “30 days late,” is indicated. Creditors report payment information monthly, meaning a late payment could appear on a credit report within a month or two of the missed due date.
Credit Score Implications of Delinquencies
Delinquencies negatively affect credit scores because payment history is the most significant factor in credit scoring models, such as FICO and VantageScore. These models weigh on-time payments heavily, and even a single late payment can lead to a noticeable drop. The impact intensifies with the severity of the delinquency.
A 30-day late payment has less impact than a 90-day late payment, but both can significantly lower scores. Multiple delinquencies or those that are more severe have a compounding negative effect. The recency of the delinquency also plays a role, with recent late payments having a greater immediate impact than older ones.
Delinquencies remain on a credit report for seven years from the date of the first missed payment. While their impact lessens over time, they continue to influence credit scores and lending decisions.
Steps to Address Delinquencies
Individuals can obtain their free credit reports from AnnualCreditReport.com. Reviewing these reports allows for the identification of any reported delinquencies. It is important to verify account numbers, dates, and amounts to ensure accuracy.
If an inaccurate delinquency is identified, it can be disputed directly with the credit bureaus. The dispute process involves submitting a formal request online or via mail, providing details about the inaccuracy. Supporting documentation, such as proof of payment or correspondence with the creditor, should be included to strengthen the dispute.
For accurate delinquencies, contacting the creditor directly to discuss payment options. Many creditors are willing to work with individuals to establish a payment plan or other arrangements to bring the account current. Making payments to resolve the past-due amount will stop further delinquencies from being reported and help improve the account’s status.