The delinquency rate tells you what part of your portfolio is overdue. We explain its formulas, with step-by-step examples, and how to read the result.
"How much delinquency do we have?" It is a simple question with several possible answers, depending on how you calculate it. The delinquency rate is the indicator that answers it, but you have to choose the formula carefully and always apply it the same way for the number to mean anything.
Summary: the basic delinquency rate is the overdue portfolio divided by the total portfolio. It can be calculated by amount or by number of credits, broken down by aging bucket and analyzed by vintage, that is, grouping credits by the month they were granted.
Key concepts
- Total portfolio: the sum of the outstanding balances of all active credits on a cutoff date.
- Overdue portfolio: the part of that portfolio belonging to credits with installments overdue beyond the threshold you define.
- Delinquency threshold: the number of days overdue from which a credit counts as delinquent. Each business sets its own; the financial sector commonly uses thresholds such as 30 or 90 days, depending on the analysis.
The criterion for what goes into the overdue portfolio must be in writing. There are two usual options: adding only the overdue installments, or adding the full balance of credits with any overdue installment. The second is more conservative.
Formula 1: by amount
Delinquency rate = overdue portfolio ÷ total portfolio × 100
Example: at month-end, the total portfolio is 50,000. Credits more than 30 days overdue have a combined balance of 4,000.
4,000 ÷ 50,000 × 100 = 8%
Formula 2: by number of credits
Rate = delinquent credits ÷ active credits × 100
Example: there are 200 active credits and 22 are delinquent.
22 ÷ 200 × 100 = 11%
If the rate by number is higher than the rate by amount, delinquency is concentrated in small credits. If it is lower, in large credits.
Formula 3: by aging bucket
Breaking down the portfolio by days overdue shows how much of the delinquency is recent and how much is old.
| Bucket | Balance | % of total portfolio |
|---|---|---|
| Current | 41,500 | 83.0% |
| 1 to 30 days | 4,500 | 9.0% |
| 31 to 60 days | 2,000 | 4.0% |
| 61 to 90 days | 1,200 | 2.4% |
| Over 90 days | 800 | 1.6% |
| Total | 50,000 | 100% |
With this table, the rate with a 30-day threshold is 4.0 + 2.4 + 1.6 = 8%, and with a 90-day threshold, 1.6%. That is why you should always state which threshold you are using.
Formula 4: by vintage
A vintage groups the credits granted in the same period, for example in the same month. You measure what proportion of each vintage became delinquent after a certain time.
Example:
| Vintage | Credits granted | Delinquent after 3 months | % |
|---|---|---|---|
| January | 50 | 4 | 8% |
| February | 60 | 6 | 10% |
| March | 55 | 9 | 16% |
The March vintage is deteriorating faster. This may be due to a change in approval criteria, a sales campaign or a change in the type of customer. It is the most useful analysis for evaluating a credit policy, such as the one we propose in how to analyze risk before granting credit.
How to interpret it
- Look at the trend, not a single month.
- Always compare using the same threshold and the same overdue portfolio criterion.
- Take growth into account: if the portfolio grows fast, the rate can fall simply because there are many new credits that have not yet had time to fall behind. Vintage analysis corrects that effect.
- Combine it with recovery: stable delinquency with good recovery is not the same as stable delinquency that never gets collected. We looked at this in portfolio recovery indicators.
How to calculate it in a spreadsheet
If you do not yet have a system that calculates it, you can do it in a sheet with one row per active credit and these columns:
| Column | Content |
|---|---|
| A | Contract number |
| B | Outstanding balance on the cutoff date |
| C | Days overdue of the oldest overdue installment |
| D | Bucket, calculated from column C |
| E | Month granted, for the vintage analysis |
With that data, the rate by amount with a 30-day threshold is the sum of B for rows where C is greater than 30, divided by the total sum of B. The breakdown by bucket is obtained by adding B for each value of D, and the vintage analysis by grouping by E.
The most delicate part is column C: it must always be calculated on the same cutoff date and with the same day-count criterion. If one month is calculated on the 30th and another on the 5th, the figures are not comparable.
Common mistakes
- Not stating the day threshold used.
- Changing the overdue portfolio criterion from one month to the next.
- Including closed or written-off credits in the total portfolio.
- Drawing conclusions from a single month.
- Comparing your rate with another company's without knowing how they calculate it.
Frequently asked questions
What is a good delinquency rate?
There is no universal figure. It depends on the product, the type of customer and the country. The best benchmark is your own trend with a consistent calculation.
Should I include credits with a payment agreement?
Define a criterion and always apply it. Many companies show them separately so as not to hide the risk.
How often should I calculate it?
Monthly, with a fixed cutoff date. Weekly tracking of the buckets can serve as an early warning.
How Shalom Trust solves it
Shalom Trust shows what has been collected, what is pending and what is delinquent, and organizes the portfolio according to each customer's level of delay. You can see it in collections.
Conclusion
The delinquency rate is simple to calculate and easy to misread. Choosing the threshold, defining what goes into the overdue portfolio, breaking it down by bucket and analyzing it by vintage turns a loose number into a tool for running your credit business.
