When a consumer’s loan is restructured or refinanced, the original terms of the obligation change significantly, either by creating a new loan agreement or adjusting the existing one. The way this is reported depends on whether the original account is closed and replaced or whether it is modified and continues under new terms. The FCRA requires that this distinction be reported accurately to avoid misleading lenders and consumers.
Restructuring vs. Refinancing
- Restructuring: The creditor modifies the existing loan agreement to make repayment more manageable, such as lowering interest, extending the term, or adjusting payment schedules.
- Refinancing: The borrower takes out a new loan to replace the original, often with a different lender or under materially new terms.
Each scenario requires a slightly different reporting method.
Steps for Reporting a Restructured Account
If the account is restructured under the same loan agreement:
- Continue Reporting the Same Tradeline
- Retain the original Date Opened and account number.
- Report the updated payment terms, balance, and scheduled payment amount.
- Apply the Correct Special Comment Code
- Use “CN – Loan modified under a federal government plan” or
- “CO – Loan modified, not under a government plan”
- Preserve Payment History and DOFD
- Do not erase prior payment performance.
- Keep the Date of First Delinquency (DOFD) intact if delinquency existed before restructuring.
Steps for Reporting a Refinanced Account
If the account is refinanced into a new loan:
- Close the Original Account
- Set Account Status = Transferred or Paid
- Set Balance = $0 and Scheduled Payment = $0
- Include a comment code such as “Account refinanced”
- Create a New Tradeline
- Use a new Date Opened to reflect the refinance date.
- Report the new terms, balance, and payment obligations.
- Payment history begins fresh, unless the lender chooses to import prior records.
FCRA Compliance Requirements
The FCRA requires furnishers to:
- Report complete and accurate information
- Ensure the transition from restructured or refinanced status is not misleading
- Provide updates within the regular reporting cycle
- Maintain historical data to give lenders a clear picture of repayment behavior
Impact on the Consumer’s Credit Report
- Restructured Accounts
- Retain account age, which may help credit history length.
- Show continuity of repayment under adjusted terms.
- Refinanced Accounts
- Old tradeline closes and may eventually drop off the report.
- New account starts with a fresh open date, which can affect credit age.
- Overall Transparency
- Lenders see that the obligation has been either adjusted or replaced, giving full context for risk assessment.
Conclusion
When reporting restructured or refinanced loans, furnishers must distinguish between a modification of the existing account and the creation of a new obligation. By applying the correct status codes, preserving payment history, and ensuring balances are updated appropriately, furnishers remain compliant with the FCRA and provide an accurate reflection of consumer credit behavior.