Definition of 'Delinquent'

A ‘delinquent’ in credit industry parlance is a credit card account holder who has failed to make payments on time, despite reminders.

Delinquents are the ‘non-performing’ element of a credit card issuer’s portfolio of accounts, and are usually heavily loss making. This is because those cardholders that either can’t or won’t pay the relatively small minimum payment on a credit card account are progressively likely to end up in default, requiring increased collections action, and ultimately recovery action.

Both collections and recoveries actions against delinquent cardholders are manually intensive and expensive, which is why credit card issuers take great care to assess the risk of delinquency when first issuing the card. If a card issuer sees a history of late payments or worse delinquency on an applicant’s credit report, then if the past is a guide to the future, which in credit is often the case, then the credit card issuer will decline the application depending on their careful assessment of risk.

Surprisingly many consumers have delinquent records on their credit reports, and if card issuers declined all applicants with delinquents, then few cards would be issued. Credit scoring enables a balanced assessment of the risk of delinquency, based on positive credit history as well as negative credit history. A credit card issuer will set the ‘cut-off score’ for applicants with a view to limiting the likely amount of delinquents in a batch of new applicants.

The key issue for a credit card issuer is to ensure that the profit from good payers will exceed the costs of the proportion of the new cards issued that will fall into delinquency.

From a consumer’s perspective, a delinquent record on a credit report is an adverse entry which will affect the ability to get credit, and where risk determines the interest rate, will also increase the future cost of credit.

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