Re-Age Your Credit Card Debt to Protect Your Credit Score

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Re-aging a delinquent credit card account can be a great way to wipe out payment errors in your past, or it can be a way to reanimate debts that you are no longer legally required to pay. The difference lies partly in who's requesting the re-aging. Here, we'll explain more about that difference and how you can make re-aging work in your favor.

What is positive re-aging?

Positive re-aging is a step your creditors can take to change the delinquency status of your debt on your credit record. It's designed for people who have hit a rough patch in the past but are now on the mend financially and able to make timely debt payments.

You may want to ask for a re-age because until you've paid back everything you owe, you could still be reported as "late" every month on your credit report, even though you are making payments every month. Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling agency, says this scenario is often referred to as "rolling lates."

"If you miss a loan payment in April, you are 30 days late," Sullivan explains. "The payment you make on time in May is considered your April payment and you are again 30 days late."

According to Sullivan, you never catch up until you send an extra payment that includes the missed payment plus all interest and penalties. "Every reported late payment is another deduction from your credit score and diminishes your credit rating," he says.

When your credit is re-aged, two things can happen: either your creditors will go back and mark all your payments as on time, or they'll mark every payment going forward as on time and leave the late payment marks in place. Either way, you'll at least be reported as being current on your bills. The damage to your credit report will stop mounting.

Not only that, but re-aging can bring late fees to a halt. This makes it easier for you to stay on top of your bills and actually pay back what you owe.

Get a credit reboot with re-aging

If re-aging is a strategy you'd like to pursue to repair your damaged credit, there are a couple of avenues to pursue. Most of the time, re-aging takes place as part of a debt management plan you sign up for, meaning the organization you're working with will initiate re-aging with your creditors on your behalf.

In case you're not familiar with debt management plans, they're arrangements drawn up by nonprofit credit counselors. Not only do these counselors often ask creditors to re-age their clients' credit, but they set up payment plans and try to talk your creditors into lowering your interest rate.

With a debt management plan, you'll deposit a predetermined amount of money every month into an account specified for debt payment. Once you get started, your credit counselor will pay your bills and manage your debts for you. (See related: 4 Ways to Negotiate Credit Card Debt)

You'll usually pay $25 to $50 a month to the credit counseling agency when you're in a debt management plan. But you can also ask creditors to re-age debt yourself.

According to Sullivan, some lenders may be willing to re-age your debt as an act of goodwill. "Lenders agree to re-age accounts to help borrowers and to encourage them to keep making payments," he says. "Re-aging an account is a way to offer a fresh start by declaring the account is current."

To be eligible for debt re-aging, your account must be at least nine months old, and you have to make your minimum payment for at least three months in a row. You'll also have to demonstrate a "willingness and ability" to repay your loan in full. It's best to do this in a letter to the creditor describing why your payments were late and how your financial situation has changed since then. Ask for written confirmation from the creditor that your debt is being re-aged, too.

But don't request a re-age unless you're sure you can continue to pay on time. By law, creditors can't re-age an account more than once in a 12-month period and not more than twice in five years. So if you fail to make good on your agreement, you'll lose the chance to re-age again for at least a year.

Negative credit re-aging

While getting your creditors to re-age your credit can be advantageous if you have a plan to catch up on your delinquent payments, there are times when re-aging can actually hurt you. This applies to people whose debt has been charged off and is past the statute of limitations for collections, or is nearing that deadline. Collections agencies may try to re-age the debt to restart the clock on the statute of limitations and give them more time to sue for collection.

They may do this by getting you to acknowledge the debt is yours or getting you to make a payment, even when it's not in your best interest. When this kind of debt is re-aged, the collector gets another three to seven years (depending on the state you live in) to use the courts to help collect your debt. In addition, the delinquency will be put back on your credit report, where it can stay for another seven to 10 years if it's not paid off in full. Ethically, it's great to pay off your debt, but unless you can afford to pay it all off, consumer advocates advise against re-aging your debt.

Unfortunately, some unscrupulous collectors may even lie and report your bill in collections as a new late bill, without any action from you. Re-aging in this way is illegal and a violation of the Fair Credit Reporting Act. If it happens to you, contact the Consumer Financial Protection Bureau or a lawyer.

Improving your credit for the long haul

Whether you decide to work with a credit counselor on a debt management plan or handle debt re-aging yourself, getting all your bills up to date is crucial. Not only will it help you stop paying expensive late fees, but it will also help you start fixing the damage you've done to your credit score.

Since your payment history makes up 35 percent of your FICO score, making all your payments on time is the best way to boost your score in a hurry. Asking your creditors to re-age accounts in default is one way to do it, but you should also strive to pay all your bills on time going forward.

Another big move that can improve your credit is simply paying down the debts you owe. Your credit utilization makes up another 30 percent of your FICO score, which means how much you owe in relation to your credit limits plays a huge role in your credit health. When you pay down debt, your utilization falls and you look better in the eyes of creditors. (See also: Fastest Way to Pay Off $10,000 in Credit Card Debt)

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