Using personal credit, such as a credit card, bank loan or student loan, can be a good way to make large purchases and invest in an education. However, failure to pay debt as they come due can result in account delinquency, which has a negative effect on the individual's credit score.
Definitions
Credit history refers to the information contained on a credit report from one of the major private credit reporting agencies. These companies gather information about an individual's past financial activity and provide it to banks and other lenders to establish the level of risk that the individual represents. A delinquency is any account for which the individual has failed to make payments on time according to the terms of the loan agreement.
Contents
Several different types of information make up a complete credit history report. According to the University of Maryland, payment history makes up 35 percent of a credit history report. Amounts owed figures for 30 percent of the total, while the length of credit history, new credit and types of credit used account for 15, 10 and 10 percent, respectively.
Delinquency
An instance of account delinquency falls into the payment history category of a credit history report. Even once the delinquent account has been paid off, the delinquency still remains on the credit history for seven years. This is substantially longer than the two-year time period that items such as information about inquiries remain on a credit report.
Effects
Having an instance of delinquency in your credit history may not be enough to prevent you from getting loans or receiving a credit card in the future. The payment history section contains specific information about the duration and severity of the delinquency. More extreme cases of delinquency, coupled with other credit problems like high levels of debt, may prevent the individual from financing a home or vehicle, receiving student loans, leasing an apartment or gaining access to a new credit card.
Prevention
Because the amount and duration of a credit delinquency appears on your credit history, try to resolve any delinquency issues as soon as possible. Better yet, contact your lender if you anticipate that you won't be able to make a required payment. Many lenders can offer a reduced payment plan or debt consolidation plan to prevent delinquency from happening in the first place.
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