If you stop making payments on a credit card (and never resume), the date you are officially 30 days behind becomes your default date. This is also the moment the reporting period clock starts ticking. The credit card company will typically charge off the account six months later. The reporting period clock will tick for 7 years plus 180 days from your default date, and cannot legally be reset by any subsequent collector, but…
Open Dates vs. Default Dates
Many people entering credit repair services are confused about the reporting period on collections, especially collections that bounce around from collector to collector. Each incarnation of the account will show an open date, but this has no bearing on your reporting period. The transfer of your account from one collector to another cannot legally reset the date, but this does not mean it will not get reset.
Convenient Accidents
The first and most common way the reporting period clock gets reset is apparently by accident. This occurs in the hands of collectors, usually at the time of sale of the debt, and usually very near the end of the reporting period. There are a fair number of these accidents, and hence, a mountain of collection accounts that report for years after the original expiration of the reporting period.
Oops, I Reset the Reporting Period
The second way the reporting period clock gets reset is also quite common, and increasingly so. It is also entirely legitimate although it happens in a pretty covert manner. If you enter into a payment arrangement with a collector and formalize it, you effectively create a new contractual obligation with a new reporting period limit. There is a new breed of collector that has become quite proficient at the art of making this happen.
Collectors of the Last Resort
When a collection nears the end of the reporting period it is almost always past the statute of limitation (depending on your state). These collections are not much of an asset to a collector. A lawsuit would have no teeth, and the darn thing is about to fall off your report anyway. These debts are bundled up and sold, often for less than a penny on the dollar. The collectors that purchase these accounts are the collectors of the last resort, and they have a plan.
The Threat and the Lifeline
The technique is quite simple. These collectors send letters to each debtor, on attorney letterhead, couched in threatening language. And then they offer a way out. All a debtor needs to do is agree to enter into a reasonable payment arrangement and they will call off the dogs. The psychology is smart and the results are not unexpected; lots of collection accounts are reborn with new reporting period limits.
Good Payment Arrangements
Not all payment arrangements are terrible. On the contrary, many are fine. Collectors these days are hungry and willing to deal. If you can get a good break, and are able to afford the payments without risking another default, go for it. The key is to do your homework first. At the end of the reporting period you should fear no one and should be able to dictate the terms of any agreement. If you are in our credit repair program we will check all of the relevant dates and guide you to the best course of action. If you are not in our program, give a call!