What Is Aging a Credit Card Account?
It would be nice if past due credit card accounts had a reset switch; well, they do -- kinda. Credit card issuers sometimes agree to re-aging an account to help a customer become current. This is not always an option for you or the lender, because federal law regulates re-aging accounts to prevent lenders from defrauding investors.
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Identification
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When a creditor re-ages a credit card account, he essentially ignores any past negatives associated with it, such as missed payments. Take a person two months behind on his credit card bill. The creditor can re-age the account back two months so the person is no longer delinquent. The borrower still owes the same balance on the account, but as long as he continues to make payments on time in the future, he will always be considered current.
Legal Issues
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The Federal Financial Institutions Examination Council governs how and when a creditor may re-age an account. Normally, a creditor must declare a debt older than six months noncollectable and write it as a loss in her accounting log. Re-aging could extend this and prevent losses, making a company appear healthier than it really is. In order to re-age a credit card account, the borrower must have had the account for nine months and an ability and readiness to pay the current bill, such as making at least three minimum payments in a row.
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Time Frame
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On revolving credit card accounts, the creditor may only re-age it once every 12 months or twice in a five-year period. The creditor may re-age the account of any borrower in a debt management plan, but only once every five years, according to Bankrate.com.
Benefits
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Because the account becomes current, the creditor cannot charge any more late fees. You do not have to immediately pay the missed bills all at once, which eases the stress on your monthly cash flow of a lump sum from delinquent bills. Also, the lender will report the account as "paid as agreed" to the bureau, so you continue to build positive payment history.
Disadvantages
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The creditor still reports the missed payments to the credit bureaus. Late payments stay on your credit profile for seven years. Also, because of the limits on re-aging credit cards, you must time it perfectly. Re-aging an account only to become delinquent a few months later does little to help your long-term financial outlook.
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References
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