If you look up the word “delinquent” in a dictionary, you’ll see that it refers to being neglectful in fulfilling a duty. If used when discussing a payment, it usually means the payment is past due. Whenever you apply for and are granted a loan or a line of credit (including a credit card), it typically comes with a contract. A significant part of the contract involves how you’ll pay back the outstanding amount and on what timetable.
You may, for example, need to pay back $300 monthly by the 15th of each month. If the 16th arrives and you haven’t paid the amount you owe, you’re typically considered to be “delinquent” on that loan.
Typically, once someone is late in making a payment, a late fee may be assessed, and late payments may impact the person’s credit report.
If payment has not been made on most federal loans for 270 days, they can be considered in default , which can come with additional negative consequences. This post will explore the topic of delinquent payments and potential related consequences, along with ways to help prevent student loans from becoming delinquent.
Credit Score Calculations and Purposes
Typically, whenever you apply for a loan, that information is sent to the three major credit bureaus. When you obtain a loan, the same thing happens, and this information is added to your report. (This applies primarily to non-student loan debt. When you apply for a federal student loan, it doesn’t appear on your credit report until the loan is obtained.)
Now let’s say you want to apply for a new loan, whether a mortgage, car loan, or a credit card. The lending institution needs to review your application. They may approve your application or deny it, or they may offer you something different from what you requested.
This review is done because the lending institution wants to make sure you’re able to repay the loan, so they’ll typically look at things like your income to make sure you have the financial resources to make payments, as well your outstanding debts—again, to make sure you are financially able to repay the loan under the terms being offered.
If it’s a secured loan (which is a loan secured by an asset like a home, car, boat and so forth), they’ll make sure the asset being used as security for the loan has enough value. There are many other factors that come into play, of course, but those are some important ones.
And they’ll also check your credit score. Unlike when your income is checked, your credit score doesn’t summarize whether or not you can repay a loan. Instead, it provides a snapshot to a lending institution about how well you’ve upheld your financial commitments in the past.
If the lender sees that, to date, you’ve responsibly met your financial obligations, that can make you look more credible to a lender. But if your credit history isn’t as clean as it could be, this shoots up a red flag; things like late payments can impact your credit for months into the future, or even years.
As a result, the lender may deny the loan, or approve less than what you need and/or at a higher interest rate than what’s being awarded to people with excellent credit scores.
To help lenders get a look at your creditworthiness, they usually refer to your credit score. (In the past, they needed to plow through pages of credit history information to review your history.) Although there are multiple calculations that can be used to determine creditworthiness, FICO® scores are the most commonly used. This base score can range from 300 to 850; the higher the base score, the better your credit is considered to be.
Here is the general formula used by Fair Isaac Corp., the creators of the FICO Scores, to determine your base FICO score:
• As much as 35%: payment history
• About 30%: what you currently owe
• Up to 15%: credit history length
• Up to 10%: types of credit
• Up to 10%: new credit (sometimes, FICO scores can be lower because a person is new to establishing credit)
There are three major credit reporting agencies. Besides Experian, there is TransUnion and Equifax. According to the federal Fair Credit Reporting Act (FCRA) , you are allowed to obtain a free copy of your credit report each year. To do so, you can answer a series of questions online , then choose which reports to review.
Some people initially check a report from just one of the credit bureaus, and then, a few months later, check another one. If errors are found, it’s important to correct them with the credit bureaus.
More about Delinquent Payments
If someone is late on a payment, say on a credit card, there can be fees assessed. If payments continue to be late, additional fees may be added. Delinquency may also cause your loan to switch to a penalty APR, which can cause interest owed to significantly increase and makes it harder to pay down the balance.
Late payments of 30 days or more may end up on your credit report, which can be damaging all by itself, and may negatively impact your credit score, which can make you less creditworthy in the eyes of lenders. If the amount you owe is sent to collections, that fact could appear on your credit report for seven years. If you’ve missed a loan payment and are delinquent, you can contact the lender to discuss how you can get back on track.
Late Student Loan Payment
Just as you don’t want to make a delinquent loan payment on your house or car, you don’t want to be late on your student loan payments. Specific consequences vary by lender; you can check with your loan servicer for exact details—the consequences may be different for private and federal student loans.
In addition to typically involving a late fee, a late student loan payment may appear on your credit report. If your federal student loan payment is 90 days late, it will then be reported to all three credit bureaus—but private student loan late payments are often reported to a credit bureau after 45 days.
If your late federal student loan payment snowballs into multiple ones, and you’ve missed making payments for 270 days (about nine months), your federal student loans go from delinquent to being considered in default. This means that your loans are now due in full, along with accrued interest, fees charged by collection agencies, and any other fees, fines, and penalties.
To collect this amount, the government can garnish up to 15% of your pay, and/or use your tax return to put towards the debt. They can do the same to your co-signer, if you have one. And, your loan services can even sue you .
If you know you’re going to miss a payment, you can always contact your student loan servicer. If you’re undergoing financial hardship, perhaps because of a job loss or medical emergency, you can apply for federal student loan deferment , which can postpone payments or reduce them.
If the situation is less serious, and you’ve missed a payment because of your hectic schedule, you might find it helpful to set up automatic loan payments.
Here’s a third scenario: Let’s say that you’re meeting your student loan payments, but the amount you’re paying every month is higher than you’d like. In that case, you could apply to refinance your student loans. If you qualify, you could have the option to select a more manageable monthly payment.
It is important to remember that if you refinance your loans with a private lender, you will forfeit all of your federal benefits including student loan forgiveness or deferment.
Refinancing Student Loans with SoFi
When you refinance your student loans with SoFi, you can consolidate your private and federal loans into one loan with one convenient payment. Potential benefits of refinancing include:
• Your ability to choose between fixed rates and variable rates
• Your ability to select new loan terms
• No prepayment penalties or hidden fees
• Refinancing federal and private loans into a brand-new lower-rate loan
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website on credit.