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From a lender's perspective, you're technically late on your debt if you fail to make a payment before midnight on the day it's due. But in the world of credit reports and credit scores, there are differing degrees of delinquency, each with its own meaning and consequences.
What sets these different levels of delinquency apart is time—and more specifically, the number of days that elapse after the due date and before payment is made (if it is made at all). Here's a breakdown on how it works.
Debt Delinquency Timeframe
The length of time a debt is past due will have different effects on your credit and finances.
1 - 30 Days Past Due
If you make a late payment within 30 days of its due date, the consequences will depend on your lender's policies and discretion. Some lenders treat payments as "on time" if they're received within 10 days of the due date. Other lenders impose a late fee as soon as a payment deadline is missed, the amount of which can vary depending on the type of loan or credit account and the size of the payment. (If you contact your lender, they may consider removing the late fee.)
Late payments are not reported to the credit bureaus until you have missed a full billing cycle, which is typically 30 days. Once a payment is 30 days late, most lenders will report it as delinquent to the national credit bureaus (Experian, TransUnion and Equifax), which causes a delinquency to appear on your credit reports. That, in turn, can have a significant negative impact on your credit scores. Lenders don't report all accounts to the credit bureaus at the same time each month, so there may be a lag between when your account goes 30 days past due and when that delinquency appears on your credit report.
If you know you won't be able to make a payment on time, reach out to your lender before the due date. Doing so may give you a chance to avoid hurting your credit. Your lender will still want to collect the payment, but may be able to help you. Lenders generally would rather work with you to try to prevent the loss of funds than take more drastic action to recover losses after the fact. That's why it's important to contact your lender before you miss a payment due date, or as soon afterward as possible, to ask for assistance.
30 - 60 Days Past Due
If you miss a second monthly payment due date, your lender will likely charge additional late fees or penalties, and you won't have much chance of getting them waived. The account will be marked 60 days past due on your credit reports, which may cause still a further decline in your credit scores.
60 - 90 Days Past Due
After you've surpassed 60 days past due, the lender is likely to step up efforts to collect the missed payments. You can expect some combination of letters, phone calls and online alerts or emails urging you to bring your account current.
You may also eventually see a 90 days past-due notice appear on your credit report, yet another negative entry that can further damage your credit scores.
90 - 120 Days Past Due
After your account hits the 90 days past-due mark, your lender will likely send you a certified letter demanding that you bring your payments current. Depending on the type of loan in question, they might also notify you of their intention to recover their losses:
- In the case of a mortgage loan, that could mean a notice declaring they'll initiate foreclosure in 30 days.
- With an auto loan, that could mean repossessing the vehicle. (Some lenders pursue repossession sooner, when payments are 60 or even 30 days past due. Depending on state and local laws, they may not give advance warning before doing so.)
- In the case of a credit card account or personal loan, that could mean closing your account permanently, declaring it an uncollectable charge-off, and selling the debt to a collection agency.
These notices often mark your last opportunity to work with the lender. At this stage, you may still be able to set up a payment plan to bring your account current.
Charge-offs, repossessions and foreclosures all appear as negative entries on your credit reports, and typically remain for seven years from the first missed payment that triggered them.
120 - 180 Days Past Due
After 120 days, in addition to any other steps made to recover their losses, the lender may turn your outstanding debt over to a collection agency. Once that happens, you can no longer work with your original creditor to make good on the debt. You must work with the collection agency, and nothing more can be done to bring the original account back into good standing.
If your account is placed "in collections," the original account will be noted as closed on your credit report and the new account (created by the collection agency) may be added to your report, indicating the amount you owe the collection agency and whether the debt is paid or unpaid.
If your account is placed in collections, you can expect the collection agency to begin attempting to collect the debt about 180 days after the initial missed payment. Collection agencies are notorious for their persistence, but generally they must stop calling you if you ask them to do so in writing. If you pay the amount you owe the agency in full, the collection account on your credit report will be marked "paid." If you negotiate a partial payment with the collection agency, your account will be marked "settled." Keep in mind that a status of settled is also considered negative.
Paying or settling a collection account could benefit your credit scores depending on the scoring model used: Some, but not all, exclude paid collections from score calculations. However, your scores likely will have been damaged pretty severely by the cumulative impacts of late payments, charge-offs and collections (plus foreclosure or repossession, if applicable). A lender reviewing your credit report might view a paid collection more favorably than an unpaid one when considering your loan application, though many lenders will consider recent collection accounts of any status as a red flag when determining your creditworthiness.
Paid, unpaid or settled, collection accounts remain on your credit report for seven years from the date of the first delinquency that led to the charge-off.
What Can You Do if You Have Delinquent Debt?
If you have delinquent debt or debt in collections, you are not alone. Still, you should act sooner than later to try to address the situation and begin rebuilding your credit and financial footing. Here are some steps to take.
- Check your credit report. Getting a copy of your credit report can be a great tool in evaluating your current debt situation. Review your credit report to make sure that the information reported is accurate and up-to-date. If you see information you believe is inaccurate, contact the credit bureau that provided your report to share your findings and investigate further. You can monitor your credit for free through Experian. Credit reports from all three bureaus are available through AnnualCreditReport.com.
- Contact your lender. Try to work out a plan for getting your account back in good standing. If you're experiencing a temporary income loss or other financial setback, ask about loan forbearance.
- Consider a debt consolidation loan. These loans can shift multiple high debt payments per month into a single, more manageable one. This strategy works especially well for credit cards and may even help you improve your credit scores.
- Create a budget. Committing to spending within your means will help you manage your credit responsibly, and this will help you stay on track over time. Factor in your regular expenses, and leave a little extra to put in an emergency fund too.
- Consult a certified credit counselor. Credit counselors can help you establish and maintain a budget and get your debt under control. If it proves impossible to manage your debts with your current income, a counselor can help you get into a debt management plan (DMP), which could bruise your credit but get you out of debt in a way that allows faster recovery than bankruptcy.
Delinquent debt can have lasting ill effects on your credit, but if you're proactive about addressing it (and abiding it in the future), you can move past it and rebuild your financial health.