Re-Aging Credit - Curse or Blessing

 

Many people are unaware of what the term “re-aging credit” refers to, and how it can affect them.  When utilized in a legal, proactive manner it can make late payments disappear like magic!  Staring from the basic concept of credit understand that any debt accrued by a debtor must be paid back to a creditor within a specified period of time. Re-aging credit refers to a readjustment of this period of time with the result of an alteration to the debtor's credit history. It should be noted that there is positive and negative re-aging, the former being legal and the latter illegal.

 

Negative re-aging must be explained before discussing the legal method. The Fair Credit Reporting Act (FCRA) states that a debt becomes delinquent when a payment is thirty days late. From the date of the first delinquency this information will remain on the debtor's credit history for a period of seven and a half years. After this period it must, by law, be deleted.

 

Once payments on a debt are overdue by one hundred and eighty days the creditor can begin the charge-off process. This has an extremely negative impact on a credit history, and can be reported to the credit reporting agencies either by the creditor or by any debt collection agencies they have employed.

 

This is the point at which illegal re-aging may occur. The FCRA states very clearly that a charge-off can only be reported in a credit history for a period of seven and a half years from the date of the first delinquency. This date cannot ever be changed. However, as debts are transferred to collection agencies, these organizations often attempt to report a more recent delinquency date, thereby extending the period in which the charge-off is included in a credit history.

 

Creditors and debt collection agencies do this in an attempt to extend the period of time which they have to attempt to reclaim the debt. However, this is not only illegal, but will negatively impact on the debtor's ability to get credit for a longer period in the future. Whenever a lender is making a decision on whether or not to extend credit to somebody they will check their credit history to determine the likelihood of the debt being repaid. If somebody has a bad credit history with many defaults on loans they are unlikely to receive credit from any lender.

 

It is in an attempt to make their credit history more acceptable that many people will allow their creditors to re-age their debt in the positive, legal manner. People can miss payments on their loans for a variety of reasons, many beyond their control. Each instance of delinquency will be reported on their credit history, which will make it increasingly harder to obtain credit in the future.

 

As has been previously stated, a creditor can begin a charge-off process after a period of one hundred and eighty days. This is basically a declaration that they do not expect the debt to ever be repaid, and is extremely damaging to a credit history. Before this occurs, however, the creditor may be prepared to re-age the debt.

 

Re-aging credit legally means effectively clearing any delinquencies from a debt once there is an agreement that payments will begin to be made on time again. If a creditor is in agreement they will begin to report the debt as being current rather than delinquent. Therefore any late payments will be removed from the credit report, and the debtor's credit history will appear to be much more positive again.  The only time this is going to happen though is at the debtor's request.  If you have an otherwise acceptable credit profile and for some reason you made a payment late it might be worth asking the creditor to consider re-aging the account.

 

For this to occur the creditor must be satisfied that payments will be made, therefore it is most applicable in situations where a debtor has been only temporarily short of money. The debtor will have to prove to the creditor that they have the means to make regular repayments to the loan, as well as being able to repay the instalments they have missed. The creditor will be under no obligation to re-age the debt, but they will usually be happy to do so if they are confident that the loan will be repaid.

 

The result will be certain negative aspects being removed from a credit report, however there is a drawback. One of the factors used to determine a credit score is the length of the credit history. Re-aging effectively reduces this length, which will make creditors less confident about lending. The compensation, however, is that there will be no delinquencies on the credit history.  This should be a bigger contributing factor in achieving a respectable credit score.  You might think twice about re-aging the affected account if it has a long history and your credit history is otherwise short.

 

Risk based pricing and tighter credit guidelines in general have made originators acutely aware of how important a few additional points can be on a credit score.  A careful analysis of the credit report should make it relatively apparent whether re-aging an account is likely to improve a borrower's score.  It could be the difference between approval and denial.