Just as your friends expect to be paid back after they cover you for dinner and a round of drinks, lenders and credit card companies want to be repaid when you put a balance on your credit card.
Being late, or delinquent, on your credit card can have some serious repercussions to your credit file and cost you. Read on to learn more about what it means to have delinquent accounts, how it could impact your credit, and how you might be able to remove a delinquency from your credit report.
Related: Using a personal loan to pay off credit card debt
What Is a Delinquent Account?
The meaning of a delinquent credit card is that you didn’t make a payment before midnight on the day it was due. That being said, there are different degrees of delinquency, all of which bear different financial consequences.
When your credit card account is reported to the credit bureaus and what stage of delinquency your account reaches over time is up to the lender. Typically, they won’t report to the three major credit bureau agencies (Transunion, Equifax, and Experian) that your account is delinquent until after a full billing cycle, or around 30 days.
When it comes to a delinquent account definition, “delinquent” and “default” are sometimes thought of as being one and the same. But they’re different. While both have to do with missing payments, default is more serious, with greater consequences.
Default usually means that you’re late on payments for at least 30 days and the lender assumes you won’t get that money back. In turn, they start taking action to get repaid, whether it’s their in-house collections team reaching out to you, having a third-party collections agency tend to that task, or selling off your loan to a collections agency at a discount.
What Does It Mean to Have a Delinquent Account?
The delinquent account meaning with a credit card is that this account has not been paid even after the due date of the payment has passed. In addition to the damage to your credit score and being the subject of collection, a delinquent consumer will have their credit card charging privileges either suspended pending payment or revoked permanently.
Understanding a Delinquent Credit Card Account
When exactly a lender or a credit card company considers a credit card account delinquent and charges late fees depends on the lender.
Here’s an example of how delinquency with a credit card account might shake out:1-30 days: Some lenders might have a grace period after your payment is late. For instance, a credit card company might consider a payment on time as long as you make your payment within 10 days of the due date. In turn, they won’t hit you with any late fees.
Other lenders might ding you with a late payment fee the day after you’re late. However, most credit card companies won’t report you delinquent to the credit card companies until you’re late a full billing cycle, or 30 days. When your credit score sinks, you might find yourself moving from credit cards for good credit to qualifying for credit cards for fair credit and even credit cards for bad credit.
To avoid your credit score from going too low, you can reach out to your lender and let them know you’re aware that you’re late on making a payment. Once 30 days have passed, it’s harder to work something out with the credit card company and get your fees waived.
Explain your situation sooner rather than later. The credit card company might have a hardship department that can offer some relief options, such as waiving late fees, letting you temporarily skip a payment, or offering an installment plan that’s based on what’s doable for you.
- 30-60 days: Once the 30-day mark has passed on your payment, the lender will most likely start the late fees and penalties. As mentioned before, when you’re delinquent after 30 days, it’s very difficult to get these fees waived. After your account hits 60 days late, your credit score will take a steeper hit.
- 60-90 days: At this point, if you’re still delinquent on your credit card payments, expect the efforts of the lender to collect on what’s past due to ramp up. This might mean phone calls, emails, and notices in the mail. A 90-days past due mark might also show up on your credit card, thus further dinging your credit.
- 90-120 days: After three months, the credit card company might send you a letter via certified mail demanding that you pay up on what you owe. They might even let you know that they’ll be closing your credit card account permanently, as they plan on selling off your outstanding balance to a debt collections agency. During this period, it’s usually your last chance to work with the credit card company to repay your debt before it enters default.
Example of a Delinquent Credit Card Account
Barbara has a personal credit card account and uses it to pay for miscellaneous purchases and when she goes on vacation. She has an $800 balance on it and usually makes the minimum payments.
However, she forgets to make a payment. Ten days after she’s late on her credit card, the credit card issuer dings her with a late fee. After 30 days have passed, the credit card issuer reports her account as delinquent to the major credit card bureaus.
Fast forward 120 days, and after a slew of notices via phone, email, and mail, her credit card lets her know the debt on her account will be sold off to a third-party collections agency.
How Do Delinquencies Affect Your Credit?
Delinquencies on your credit card can impact your credit score. The severity of the impact to your credit report depends on how many payments were missed and how much time has passed. For instance, after missing two payments, this might have a minimal impact on your credit score. But if you miss three or more payments, your credit score can dip dramatically, by as much as 180 points. Once the delinquency is reported to the credit card agencies, it will show up on your credit profile. Credit card companies usually don’t report your delinquency to the credit bureaus until after 30 days.
How Do I Remove a Delinquency From My Credit Report
Here are some ways you can remove a delinquency from showing up on your credit report:
Waiting It Out
The easiest option is to wait until your delinquency drops off from your credit report. Typically, delinquencies stay on your credit profile for up to seven years. Even if you end up paying off what’s owed, the delinquency remains on your credit report. The delinquency date is the date from which you missed the payment. Let’s say you were late in May 2022. In that case, your delinquency would fall off your credit report May 2029.
Disputing It
If you feel that your account hit delinquent status in error, you can file a dispute. You can order a credit report for free from each of the three credit bureaus. If you spot something that looks incorrect, you’ll need to reach out to the specific credit bureau, as information from one credit agency might not be the same as from another agency. You can file a dispute by email, online, or snail mail. You’ll need to include a copy of the credit report and a letter or note detailing exactly the error or mistake. Credit bureaus have 30 days to get back to you.
Negotiating for Early Removal
In some cases, you might be able to negotiate for early removal of a delinquency on your credit card account. But expect to be able to pay the balance in full or a significant portion of it in full. You can try to negotiate directly to the credit card companies about your delinquency, or you can work with a debt settlement company. A debt settlement company might help you with debt forgiveness. If it’s moved past delinquency status to default, you might need to try to negotiate your debt with the collections agency, or whoever owns the debt. When you negotiate with a debt settlement company, you negotiate how much you pay, and also to get the delinquency taken off.
How Long Does an Account Stay Delinquent?
As mentioned, a delinquent credit card account shows up delinquent on your credit profile for up to seven years, even after you pay off what you owe. Note that while your account is delinquent the day it’s late, credit card companies usually won’t report to the credit card bureaus until after your delinquency hits the 30-day mark.
The Takeaway
If you’re late on a payment, your credit card account is considered delinquent. It’s best to make your payment as soon as possible. Otherwise, you will get hit with late fees and penalties, and, once it’s reported to credit agencies, your credit score will sink. Contact your credit card issuer to see if you can work out a payment plan.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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What happens to your debt when you die?
Do you know what will happen to your debt when you die? Some debts are forgiven while others may be passed down to heirs. Read on for the answers to some of the most frequently asked questions related to death and debt.
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In order to accurately answer this question, we need to examine the most common types of debt people accumulate. In other words: Not all debt is equal. The type of debt you have and when you accumulated the debt will determine how and if your debt is passed on to others when you die.
The Most Common Types Of Debt
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If you die with credit card debt, there are two things that may happen:
- Your debt may be forgiven and written off by the credit card company
- The debt will be passed on and the responsibility of a survivor
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If you are the sole owner of the debt when you die, (not married or a cosigner) the credit card companies will be involved in the probate process. The money left in your estate, any retirement accounts, or other items worth money will be sold and the outstanding debts will be paid.
If there is not enough money in your estate to pay off the remaining credit card balance, your children or beneficiaries will not be required to pay the remaining balance. The outstanding debt will be “forgiven” by the credit card company.
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If the credit card is a joint account with a living spouse or a cosigner, the other account holder will be responsible for the debt. If you have authorized users on the account but they are not the account owner, the users will not be responsible for the debt.
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This is one of those myths that continues to live on. Credit card debt does not go away after seven years. The confusion with the seven-year time frame comes from the credit report time requirement.
After seven years, old debts begin to fall off of your credit report. Your debt, however, is still very much alive and owed. Lenders can and will continue to pursue the amount owed until it is paid, settled, or charged off. Do not be fooled into thinking your credit card debt will go away after seven years.
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The quick answer? It depends. There are several factors that determine if a deceased spouse’s credit card debt will be passed along to the surviving spouse. If the credit card debt was incurred before marriage and the deceased spouse was the sole owner of the account, in most cases, the debt will not be the responsibility of the surviving spouse.
If the credit card debt was incurred after marriage and the deceased spouse was the sole owner of the account, the state you live in determines the surviving spouse’s responsibility. If you live in one of these community property states and the debt was incurred after marriage, the surviving spouse is responsible for the credit card debt of their spouse regardless of the account ownership:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
If you do not live in one of these states, generally the surviving spouse will not be responsible for the credit card debt if they were not a joint owner of the account. If you are a joint owner on the account, you are now solely responsible for the debt.
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Again, where you live determines what can happen to your medical bills when you die. Generally speaking, children and heirs will not be required to pay back the outstanding medical bills of their parents. With that being said, there are a couple of instances where a child could be responsible for the medical debt of their parents.
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When a child cosigns admission paperwork acknowledging financial responsibility if the adult is unable to pay their bills, this debt may be passed down to the child.
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There are 26 states that have filial responsibility laws that state a child may be responsible for a deceased parent’s medical debt in certain situations. The states that have filial responsibility laws are:
- Alaska
- Kentucky
- New Jersey
- Tennessee
- Arkansas
- Louisiana
- North Carolina
- Utah
- Indiana
- Nevada
- California
- Maryland
- North Dakota
- Vermont
- Connecticut
- Massachusetts
- Ohio
- Virginia
- Iowa
- New Hampshire
- Delaware
- Mississippi
- Oregon
- West Virginia
- Georgia
- Montana
- Pennsylvania
- South Dakota
- Rhode Island
Now, before you become overly concerned about living in one of these states, understand that the enforcement of filial responsibility laws is extremely rare. If you have significant medical debt, consult with an attorney in your state to see exactly what responsibility your adult children may be required to pay back.
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Student loan debt may or may not be passed on to survivors when the borrower dies. What happens to the loan depends on what type of loan was taken out and when it was established.
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If you have federal student loans, they will be forgiven upon death. Federal student loans do not pass on to others as long as a death certificate is presented to the lender. Federal student loans that fall into this category are:
- Direct Subsidized Loans
- Direct Consolidation Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
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On Nov. 20, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was amended. The added section releases cosigners of a private student loan from financial responsibility if the primary borrower dies. Due to this, all new private student loans with cosigners are not required to repay the loan upon the student’s death.
However, student loans with cosigners taken out before Nov. 20, 2018, may still require the cosigner to be held responsible for the debt.
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Federal Direct PLUS Loans are also forgiven upon the student’s death. In the past, the parent who signed for the PLUS loan was required to bear the burden of the tax responsibility and file the forgiveness as “income” after a child’s death.
Currently, The Tax Cuts and Jobs Act of 2017, is in effect and releases parents from this tax responsibility. This tax stipulation remains in effect until the year 2025.
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There is several different scenarios involving vehicle loan debt upon the borrower’s death. If the auto loan has a cosigner or the vehicle was purchased in a community property state after a couple was married, the cosigner or spouse is responsible to repay the auto loan.
If the loan was obtained before marriage and is only in the deceased spouse’s name, generally the surviving spouse is not held responsible for the debt. The bank will take possession of the vehicle to settle the outstanding debt or the surviving spouse can pay off the vehicle loan.
If the borrower is not married, the survivors can either pay off the vehicle loan and keep the vehicle, sell the vehicle and pay off the loan or return the vehicle to the bank. Heirs do not inherit vehicle loan debt.
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Payday loan debt is very similar to credit card debt when you die. If there was not a cosigner or someone else listed as jointly responsible for the loan, then the company writes off the debt as a loss. Payday loan debt is not transferred to heirs but may be the responsibility of a surviving spouse if the debt was incurred after marriage in a community property state.
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In probate, the home must be paid off with the funds from the estate or the mortgage company must agree to let someone else inherit the loan. If you still owe money on your home, your spouse or heirs usually have three separate options:
Option 1: Sell the home to pay off the outstanding mortgage. The executor of the will can initiate a home sale to fulfill the outstanding debt obligations. If the home is not worth what is owed, additional money from the estate will be used to pay off the mortgage. If additional money is still required, the bank can take possession of the property.
Option 2: If there is enough money in your estate, your heirs can use that money to pay off the mortgage. Or the beneficiaries can use their own money to pay off the loan in full.
Option 3: If there is not enough money in the estate to pay off the loan, an heir may elect to contact the lender in an attempt to take over the loan. The loan would need to be transferred into the new borrower’s name which would require the heir to meet the credit obligations for a loan.
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Lenders can force the sale of a property to fulfill the outstanding equity loan balance if the estate does not have enough capital to pay it off. This is another scenario where the heir may be able to apply with the lender to take over the payments.
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If you have federal tax debt when you die, the IRS gets the first chance at your estate. Legally, the executor of the state is unable to pay any other debt or obligation until the federal tax debt is settled.
If a substantial amount is owed, the IRS will quickly put a lien on any property owned by the deceased in an attempt to satisfy the debt. The federal government will get their money one way or another – but the heirs will not personally be liable for the outstanding tax debt.
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There is not an automatic notification process when a person dies. The next of kin or executor of the state is required to contact the bank and provide a copy of the descendant’s death certificate.
When the death certificate is presented, the financial institution will freeze all of the associated accounts until the probate process is completed. If money is not owed to other lenders, the beneficiaries will be given access to any monies left in the deceased person’s accounts.
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Even though most debts will not be passed on to your heirs when you die, you may not want them to deal with the hassle of paying off all your debt with your estate – only to be left with nothing.
If you have struggled with debt your entire life, a cheap term life insurance policy may be an option to leave a small inheritance to your heirs. Most life insurance policies are dispersed tax-free and are not accessible to creditors.
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Leaving debt behind is a fear many seniors face. On the bright side, your heirs will usually not be personally responsible for paying off your outstanding debts. However, the sooner you can clean up your own financial mess, the better.
Do your best to start paying off your debt so your executor is not faced with a long probate process. If you need help getting started, check out this related post The Debt Payoff Playbook.
This article originally appeared on Arrest Your Debt and was syndicated by MediaFeed.org.
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