Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid having a delinquent account; the long-term consequences could cause a reduction in credit scores, which subsequently causes difficulties in obtaining loans in the future.

Delinquent Accounts and Consequences of Delinquency

Delinquency commonly refers to a situation where borrowers are late or overdue on a payment, such as student loans, income taxes, mortgage loans or automobile loans. There are long-term consequences for delinquency, depending on the type of loan and the duration and cause of the delinquency.

For example, assume a prospective homeowner takes out a loan from a bank and is delinquent on his loan for 90 days. His FICO credit score would decrease for a considerable period, affecting his credit rating for multiple years. Long-term delinquency could cause the loan to default, which would cause the bank to foreclose on his home. This would further affect his credit rating and make it difficult for him to obtain credit card accounts, mortgages or automobile loans.

Similarly, assume a recent college graduate obtained student loans throughout his stay at college. Suppose too he fails to make his first loan payment. Consequently, his loan becomes delinquent until he repays the owed amount. If his loan remains delinquent for 270 days, it goes into default and he must pay the entire balance and fees immediately. The long-term effects of his delinquent account include damage his credit rating, making it harder for him to obtain other loans, and garnishment of his wages and withholding of his tax refunds.

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