Time heals all wounds. At least that’s how the saying goes. Just as true as it is with losing a loved one or experiencing a bad breakup can be, it’s also pretty accurate with any negative or derogatory items on your credit report, too.
Yes, the older your bad debt and derogatory credit items get (as they age), the better it is for your credit report and your credit score. In even better news, there’s an end date (aka a purge date) for all of those bad credit items, such as bankruptcy, collection accounts, and more, to drop off your credit report altogether.
At least this is how it is supposed to work, in theory.
Keep in mind, though, that just because the time runs out on your debt, you pay off the debt, or you make payments on the debt, it does not mean that the bad debt that is negatively affecting your credit score is going to just go away—at least not before the purge from date allows the negative credit to drop off (after seven years for most debts, but can last longer in some situations and in some states).
What is Re-Aging Debt?
Re-aging debt is when the original delinquency date of a bad debt is changed. In reality, there are two types of re-aging. One is illegal and one is not.
On the illegal side of the equation, there are some companies that try to be slick. They change the original date of the delinquency so that it extends the purge date on your aging debt so that it stays on your credit report longer. And, oh by the way, this practice of re-aging debt is illegal.
But, just like anything in life, there are positives and negatives that come along with the re-aging of debt.
Pros
It may seem counterintuitive that a practice that is illegal can actually help you and your credit but it’s true.
Take a scenario where you have fallen behind on making payments on a particular account. You’re trying to play catchup so you are paying something towards your debt but you don’t have the cash it takes to pay off the debt completely or even to pay the past due amount.
This leads to the creditor reporting your payments late every single month. This, my friend, hurts your credit and your credit score.
In a situation like this, the creditor, bank, or credit card issuer can re-age the debt so that in fact it appears as if your payments are up-to-date, which helps to keep your credit score safe. The creditor does not change the original date of the delinquency, but it does report the payments as on-time and up-to-date (as long as you continue to make payments).
Another positive for re-aging debt accounts occurs when you work with a credit counseling agency as part of a Debt Management Plan (DMP). When you enroll in this type of program and make three payments on time, the creditors often re-age the debt. This, too, is a scenario that can help your credit score.
By the way, re-aging in these instances is not an illegal process. It’s only illegal when creditors try to fool the credit agencies and extend the time that delinquent accounts remain on your credit by changing the original delinquency of the date.
Cons
When a creditor changes the original delinquency date of your negative credit, it extends the amount of time the bad debt remains on your credit, which can also hurt your credit score.
Generally, a bad debt only remains on your credit for seven years from the original delinquency date and then falls off your credit.
Let’s say you didn’t pay your electric bill when you were a poor college student in 2012. You paid off the bad debt in 2014, but the mark on your credit remains. This is legal.
BUT, let’s say that your collection account was bought by a new collection agency in 2013 and they change the delinquency date to the date that they bought the account in 2013, extending the time the debt remains on your credit. The reason they do this is to give them more time to try to collect on the debt. This is illegal and also negatively affects your credit and can lower your credit score.
Fear it or Not?
So, should you fear the re-aging of debt? (Let’s be real—we’re not talking about Jaws here. That is scary!) I guess the long and the short of it is that it all depends on whether it is legal or illegal re-aging. The legal re-aging of debt can help your credit and your credit score, while the illegal type of re-aging debt can hurt and damage your credit and lower your credit score (Not to mention that it’s illegal).
What to Do
If you find yourself a victim of illegal debt re-aging, contact the Consumer Financial Protection Bureau. You may also want to contact a consumer law attorney to represent you and help you correct the situation.
The re-aging of debt has a good side and an evil side. Whether or not you should fear it or embrace the practice of re-aging debt all depends on the intent of the creditor and the results of the re-aging process.
In some instances, re-aging debt can help improve your credit. In other situations, the re-aging of debt can negatively affect your credit and lower your credit score. In the end, there’s no real reason to fear the re-aging of debt. You can fight those that are illegally re-aging debt to right a wrong. It just might take some work on your part to right that wrong.
