Impact Of Delinquency Or Default Payment On Credit Score

It is not impossible to find it challenging to keep up with your monthly mortgage payment. There can sometimes be hard times when you are not financially buoyant to make full payments. As possible, as this can sound, it can have a negative impact on several things, as will be considered in this article.

PAYMENT DELINQUENCY VERSUS DEFAULT

A loan is said to be delinquent when the borrower misses the payment period once; that is, the monthly mortgage payment was not made at the agreed time. It can be that the borrower does not pay in full or does not pay at all.

On the other hand, default payment occurs when a borrower consistently misses payment time or cannot keep up with the payment any longer. This means a breach in an agreement between the lender and the borrower. Payment delinquency usually leads to default in the long run, if the borrower keeps missing out on payment.
Usually, the lender gives a grace period as part of the agreement for the borrower to make payment. Most lenders allow 30 days grace after the last payment before a loan default is declared, while some can extend it to two or three months.

CONSEQUENCES

Loan delinquency or default can cause a ripple of reactions, the first usually impacting the debtor’s credit score negatively. A bad credit score automatically translates to a lower chance of getting loans in the future. Default’s consequence is even worse as the debtor will receive a bad consumer credit report, which will also reduce the chance of securing a good loan.

If by chance, the debtor even gets a loan with the poor credit score, it is almost certain that there will be high interest attached to this loan, and the debtor might not be able to settle this, hence missing out in the long run.

Apart from this, the debtor also faces foreclosure on his or her property. This usually occurs when the grace period elapses, and the debtor still cannot afford to make payment.

WHAT TO DO

The first thing a borrower should ensure to avoid the consequences explained above is to keep constant communication with the lender. Most lenders want to avoid foreclosure and are willing to revisit the terms and agreements made, provided the debtor reaches out in time.

The debtor can also consider a repayment plan. The lender will have to agree to allow the debtor to split the payment over a certain period while still paying the original monthly mortgage fee.

Another option that can cause the lender to revisit the agreement in favor of the debtor is if it makes cash payment. Cash payment saves the lender a lot of stress, and it shows seriousness from the part of the debtor.

All these options can cause the lender to extend the debtor’s payment period, which will cause a reduced impact on the borrower’s credit score, causing them to stand a chance if there is a need to make a loan request in the future.

LINKS
https://www.investopedia.com/ask/answers/062315/what-are-differences-between-delinquency-and-default.asp
https://www.valuepenguin.com/loans/what-does-it-mean-to-default-on-a-loan

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