What it means
Every overdue account has an age, based on how long it has been behind. After a set number of missed payments, lenders typically flag the account as delinquent, and later may write it off or sell it.
Re-aging resets that count, so the account returns to a current status. Legitimate re-aging is a recognised tool in consumer lending.
Regulators allow lenders to re-age an account if the borrower has made a number of consecutive on-time payments, usually after several months of being behind. The aim is to help recovering borrowers avoid a spiral of fees and damaged credit.
The rules are detailed and vary by country and type of loan, so lenders follow written policies on how often an account may be re-aged and how many payments are required. Typical limits include no more than a certain number of re-ages in a set period and a requirement that the borrower shows ability to repay.
A lender that re-ages loosely can hide the true level of bad loans in its accounts. Illegitimate re-aging is when an old, time-barred debt is made to look recent.
A collector may encourage a small payment or a promise to pay, hoping this restarts the legal time limit for suing. In many places, this practice is restricted or illegal, and consumers can dispute it.
The nuance is that the effect on the borrower depends on who is doing the re-aging and why. A lender's rule-based re-age is a benefit, but a collector's attempt to revive a dead debt is a risk.
Borrowers should keep records and ask for written confirmation of any change to an account's status. Accountants and auditors pay close attention to re-aging because it can flatter the figures.
If many accounts are re-aged just before a reporting date, the reported level of delinquent loans looks lower than the truth. Good governance requires that re-aged accounts be tracked separately, so that their later performance can be judged honestly.
In practice
Real-world examples.
Example
A customer loses work and falls three months behind on a personal loan. After finding a new job, he makes three on-time payments, and the lender re-ages the account under its written policy. His account shows as current and the late fees stop.
Example
A bank's risk team reviews its loan portfolio and finds that many accounts had been re-aged more than the policy allowed. It reports the problem to management and restates its bad-loan figures. Regulators check that the correct provisions are made.
Example
A debt collector buys an old credit card debt that is past the legal time limit. It sends a letter urging a small payment, hoping to restart the clock. The consumer disputes the debt, and the collector must stop.
Formula
Calculation
Payments behind = past-due amount / scheduled monthly payment
A borrower has a card with a $6,000 balance and a scheduled monthly payment of $300. The account is $900 past due. Payments behind = 900 / 300 = 3 payments. If the lender's policy allows re-aging after three consecutive on-time payments, then once the borrower makes three on-time payments of $300 each, a total of $900, the lender can bring the account to current status.Case study
Seen in the real world.
Greystone Credit Union is an illustrative, fictional lender with 5,000 personal loans. During a local factory closure, many borrowers fell behind, and the credit union's delinquency rate climbed to 12%.
The finance manager introduced a written re-aging policy: borrowers had to make three consecutive full payments, could be re-aged only once in 12 months, and had to show a plan to stay current. Within six months about 300 of the 600 delinquent accounts were re-aged, bringing the delinquency rate down to 6%.
The auditor tested a sample and confirmed that the policy had been applied properly, and the credit union disclosed the practice in its accounts. The illustrative lesson is that re-aging helps borrowers and lenders when it follows clear rules, and it misleads when used to disguise problems.
Watch out
Common mistakes.
- Assuming that making a small payment on an old debt is harmless, when it can restart a legal time limit in some places.
- Re-aging accounts without enough evidence that the borrower can pay, which hides losses.
- Failing to keep written proof of a change in account status.
Questions
People also ask.
Is re-aging legal?
It can be, if the lender follows the rules set by regulators and its own policy, but re-aging an old, time-barred debt to make it look new is often prohibited.
Does re-aging remove past late payments from my credit report?
Not necessarily, as the history of late payments can remain even when the account is shown as current.
How can I protect myself?
Ask for written confirmation of any change, never agree to payments on a very old debt without checking its status, and dispute anything that looks wrong.
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