How To Get A Credit Do-Over
On the financial road of life, there aren’t many mulligans.
Most credit card companies, eager to collect on overdue balances, offer card holders an opportunity to re-age delinquent accounts.
In essence, that means they’ll reclassify your account from “past due” to “current,” halt new late fees and stop reports to the credit bureau, though they won’t change your balance or retroactively wave fee charges.
You credit score gets an immediate shot in the arm and will continue to improve each month you make your payment on time, making it easier to qualify for the most favorable interest rates on future loans.
“So many consumers are unable to crawl out of that hole they’ve dug because with minimum payments and late fees the balance is actually growing,” says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Silver Spring, Md. “It’s critical that they get their account brought current, have late fees stopped and negotiate a more acceptable monthly payment so they can begin rebuilding their credit score.”
Being late on your payments, she notes, is “the worst thing you can do” because it’s the heaviest weighted element in the credit scoring model—credit history accounts for fully 35 percent of your total score.
A re-age is typically done as part of a comprehensive debt management program, negotiated through a credit counseling agency to help borrowers who are experiencing financial hardship make good on their payments, says Bill Druliner, a financial counselor with GreenPath Debt Solutions in Milwaukee, WI., a nonprofit credit counseling agency.
Such programs, generally include other concessions as well from the creditor, including a temporarily lower interest rate (which can save borrowers hundreds of dollars a month) and a reduced monthly payment.
Credit counseling agencies, which are funded by the credit card companies, typically charge clients between $25 and $50 a month to set up a debt management plan.
But cardholders can request a re-age on their own as well, particularly if they enter a payment assistance program offered by many credit card companies.
Do You Qualify?
To be eligible for a re-age, you must meet certain conditions, as laid out by the Federal Financial Institutions Examination Council.
For starters, you must demonstrate a “willingness and ability” to repay the loan in full.
This is best done in writing, which gives you the opportunity to document what went wrong during the months you were delinquent on your payments and how your financial situation has improved (you found a job or your medical bills are paid off.)
Don’t forget to request written documentation from your card company in return that confirms your account has been re-aged.
Additionally, your account must be at least nine months old, and you must make at least three consecutive minimum monthly payments or the equivalent cumulative amount.
But don’t request a re-age frivolously, warns Cunningham.
“Don’t re-age an account unless you feel you can make good on your agreement,” she says. “You don’t want to play your ace in the hole indiscriminately.”
Indeed, under federal requirements creditors cannot re-age an open-end account (such as a credit card account) more than once in 12-months and not more than twice in a 5-year period.
If you use it, you lose it—at least until the clock resets.
Keep in mind that some lenders are more restrictive still in how often they’ll allow for a re-age and a few don’t offer it at all.
If, after re-aging your account, you fall behind on your payments again, you will not incur any additional penalties.
But past due notices to the credit bureaus will once again resume and late fees will begin to accumulate.
For those experiencing short-term financial difficulty, of course, a re-age is not their only option.
“If you’re running delinquent due to a layoff or medical expenses, call your card company and they may allow you to pay $100 for the next six months and stop late fees or lower your interest rate to give you a chance to get back on track,” says Druliner. “Sometimes that’s all a client needs.”
Other options exist as well, including loan consolidation, balance transfers, 401(k) loans, mortgage refinancing and even bankruptcy.
“You have to assess what the best approach is to get your bills under control,” says Druliner. “All options are on the table and the goal is to sort through the pros and cons of each