Credit Card Delinquency: How It Works, Levels of Severity & More
While credit card delinquency rates have declined from their Great Recession peak, there are still millions of Americans struggling to deal with past-due credit card bills. It’s therefore essential that you understand how delinquency works – especially since the issue isn’t as straightforward as it might seem at first.
A consumer is characterized as being delinquent when they have fallen behind on their payment obligations for a monthly bill. When it comes to credit cards, delinquency doesn’t mean that you’ve failed to pay off your full balance in a given month, but rather that you did not make the required minimum payment.
The information in the sections below will help you avoid late payments and credit score damage as well as mitigate the impact of past-due bills and ultimately keep your credit card account in good standing.
How Different Levels of Delinquency Affect Your Credit
Credit card delinquency is measured in terms of how many days late your payment becomes. This dictates when credit card companies will report you as being late to the credit bureaus as well as how much credit score damage you incur.
- 1 - 29 days: At this point, you will have missed only one payment. If you can make the required minimum payment before the 30th day, you will avoid credit score damage, as credit card companies do not report this level of delinquency to the credit bureaus.
- 30 - 59 days: In this case, you’re behind on two payments – one of which is at least 30 days late. Credit card companies will report delinquency, but it won’t hurt your credit too badly.
- 60 - 89 days: You’re now behind on three payments. One is at least 60 days late, another is at least 30 days late, and the last one is at least one day late. At this point, your credit score will be hit hard. If you previously always paid your bill on time, your score could drop as much as 100 - 125 points.
- 90 - 119 days: You’re now behind on four payments – the first being at least 90 days late, the second at least 60 days late, the third at least 30 days late, and the fourth at least one day late. Depending on the credit card company, your account could be turned over to collections at this point. Either way, your credit score will continue to drop.
- 120-179 days: At this point, you’re late on at least five different payments. Collections calls will significantly increase, and the impact on your credit score will be significant.
- 180 days: When your credit card account becomes 180 days delinquent the credit card company is required to declare your account as being charged-off. Charging-off on an account causes the biggest blow to your credit score. Aside from bankruptcy and foreclosure, a charge-off is the worst thing one can do to their credit worthiness.
How to Get Out of Delinquency
While you may assume that you should pay what you can when you can, that’s not necessarily the case, and the last thing you want is to make a payment that will not benefit your situation. Rather, the amount that you can afford to pay will dictate whether or not doing so is wise since a minimum payment – at the very least – is required to prevent delinquency from progressing. For example, suppose your minimum payment is $50 and you only have $25. Even if you pay that amount, your credit card company will still consider you delinquent and will assess late fees accordingly. It’s therefore in your best interest to save the money until you have the full $50. This will help you avoid falling too far down the slippery slope of delinquency.
Now, let’s say you’ve missed two $50 payments and have another due date coming up. In order to fully climb out of delinquency and become current on your bill, you would need to pay $150 total (to cover the two missed payments as well as your current month’s bill).
With that said, you don’t need to wait until you have the full $150 to make a payment that will benefit your situation. Having missed two minimum payments, you will be in the 30-59 day delinquency range, which means making one minimum payment will effectively cover the current month’s bill and keep you in that range. In other words, you won’t fall further down the delinquency slope, but your situation won’t get any better. Paying $100, on the other hand, will cover the current month’s minimum payment as well as one of the payments that you missed, bringing you into the 1-29 day delinquency range.
In order to go back to current status in this example, you would need to pay the two missed payments plus the current payment due – a total of three minimum payments.
Once you become current on your credit card bill, you should start counting the months. After six months of on-time payments, you have the right to request an interest rate reduction under the CARD Act.
Delinquency can trigger a number of unwelcome developments, from increased fees and interest rates to the revocation of spending privileges and significant credit score damage. It therefore has the potential to leave you facing high costs across your financial life and without the credit access needed to make plastic-only purchases, such as car rental and hotel reservations.
You’ll therefore need to effectively rebuild your financial situation. Depending upon the extent of the damage caused by your delinquency, this might entail:
- Exploring Debt Solutions: From payment plans to debt forgiveness to bankruptcy, there are a number of ways in which consumers who are experiencing financial hardship can garner a measure of relief and improve their payment status. WalletHub’s Debt Solutions Overview will help you compare these options.
- Scrimp & Save: If you have the financial means to pay your bills but simply made some unwise spending-related choices in the past, you probably won’t be eligible for debt relief. As a result, you will need to put your nose to the grindstone and gradually pull yourself back to current payment status.
- Request a Credit Limit Increase: If your credit line was cut due to your payment problems and you have since demonstrated a consistent ability to pay on time (at least 6-12 months), you can request that your issuer re-instate your spending power. You can learn more about that process in our article on asking for a higher credit limit.
- Rebuild Your Credit: Responsible credit card use (i.e. making on-time payments and maintaining low levels of credit utilization) is the best way to build or rebuild your credit standing. If your credit card account was deactivated due to delinquency and you are having trouble getting approved for a new credit card, which you need to get positive information flowing into your credit reports on a monthly basis, it’s good to know there are certain guaranteed approval credit cards that offer the same credit building benefits as any other type of card. These cards require a security deposit that will double as your spending limit, thereby preventing you from overspending and reducing issuer risk.
At the end of the day, the one thing you should not do is let unopened bills pile up while you get bombarded with calls from creditors. Continuing to ignore delinquency will simply make your problems worse, as fees and credit score damage accrue. As a result, if you can’t make your minimum payments, talk to your credit card company about options and look into the various debt solutions that are at your disposal.