The Date of Last Activity for Defaulted Debt
Credit Reports, Charge-Offs, and Re-aging Practices
Oct 29, 2009
The date of last activity is commonly confused with other important legal dates related to credit reporting and collection practices.
The Date of Last Activity and Its Purpose
The date of last activity occurs 180 days after the last payment on a delinquent account. It is not to be confused with the date of first delinquency, which occurs when an individual misses a payment by 30 days or more for the first time. Many creditors do not consider an account to be truly in default until the 180 day time period has passed.
The purpose of the date of last activity is to determine two things:
- How long a debt may appear on a consumer’s credit report.
- How long the creditor has to legally sue the consumer to recover the debt.
Federal law determines the reporting period of a debt. The date of last activity comes into play most often with credit card debt and medical debt since these are the two most common varieties of unsecured debt that consumers face. With few exceptions, all unsecured debt reporting periods run for seven years. Section 605 of The Fair Credit Reporting Act states:
“The 7 year period…shall begin…upon the expiration of the 180 day period beginning on the date if the commencement of the delinquency which immediately preceded the collection activity..”
The date of last activity is also used to calculate the statute of limitations for debt collection. This is the legal amount of time a creditor has to sue for a debt in court and varies by state.
The Relationship Between the Date of Last Activity and Charge-Offs
If an individual goes for a long enough period of time without paying his credit card payment or medical bills, those debts will be charged off by the creditor. When a debt is charged-off, the creditor takes a tax loss on the balance and typically sells the account to a collection agency.
Oddly enough, most creditors will opt to charge off a debt on the date of last activity. The reason behind this is a financial one. As soon as that date arrives, the time period that any creditor or debt collector can reasonably sue is reduced. The longer period of time that a collection agency has to sue over a debt, the more it will be willing to pay the original creditor in order to procure the debt.
The date of last activity is frequently confused with the date the creditor charged off the account. Although these incidents commonly occur within roughly the same time frame, they are not synonymous with one another. A credit card company or hospital is not required to charge-off a debt at any given time. Should the original creditor decide not to charge off the debt for any reason, the date of last activity is still valid.
Can a Date of Last Activity be Changed?
If a consumer opts to make payments on a defaulted account or negotiate a debt settlement plan, he is essentially “activating” a dead account. By bringing an account back to life, the date of activity becomes null and void since activity is once again occurring.
In the event the individual defaults on the debt for a second time, he will be assigned a new date of last activity after 180 days.
Unfortunately, some consumers may notice that the date of last activity has changed on accounts they have not made payments on. This is known as “re-aging” and the practice is illegal. Since recent accounts have a greater impact on a consumer’s credit score, some collection agencies participate in re-aging in the hopes that an individual, not realizing that his credit score won‘t change, will submit a payment to clear up his newly damaged credit.
In 2004, the Federal Trade Commission fined NCO Group $1.5 million for participating in account re-aging, solidifying its stance on defending fair and accurate credit records for all consumers.
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