When a loan is assumed by another party, it means that the original borrower has transferred the repayment responsibility to a new borrower, with the creditor’s approval. This often happens in cases like mortgage assumptions, divorce settlements, or business loan transfers.
The Fair Credit Reporting Act (FCRA) requires that this change be reported accurately, completely, and without misleading information, so that both the original and new borrower’s credit histories reflect the correct obligations.
Why Accurate Assumption Reporting Matters
Loan assumptions affect:
- The original borrower’s credit history — ensuring the account no longer appears as an active obligation
- The new borrower’s credit profile — reflecting the correct start date, balance, and payment status
- Lenders’ ability to assess risk — by seeing an accurate record of debt ownership
Steps for Reporting an Assumed Loan
1. Update the Original Borrower’s Account
For the original borrower:
- Account Status: Report as “Sold” or “Transferred” (Metro 2® code 95)
- Balance Amount: Set to $0
- Scheduled Monthly Payment: Set to $0
- Special Comment Code: Apply “AS – Account assumed by another party” to indicate the change
This confirms that the original borrower no longer has legal responsibility for the debt.
2. Create a New Tradeline for the Assuming Borrower
For the new borrower:
- Date Opened: Use the date the loan was assumed
- Account Number: Assign the appropriate number under the new borrower’s records
- Balance & Terms: Report the outstanding balance and original or modified payment terms
- Payment History: Include prior history only if the creditor’s policy or agreement allows it
- Special Comment Code: Again, use “AS – Account assumed by another party” for clarity
3. Preserve the Date of First Delinquency (DOFD)
If the account was delinquent before the assumption, that history should remain with the original borrower’s file. The new borrower’s reporting should start fresh from the date of assumption, unless the agreement specifically transfers delinquency status.
FCRA Compliance Requirements
To comply with the FCRA:
- Report updates promptly within the regular reporting cycle
- Avoid dual reporting of active balances for both borrowers
- Ensure that all parties’ credit reports reflect the true, current legal responsibility
- Retain historical payment records in accordance with retention rules
Impact on Credit Reports
- Original Borrower’s Benefit
Once the loan is assumed, it no longer appears as an active debt, helping reduce their overall debt load on their credit report. - New Borrower’s Responsibility
The loan appears as an active tradeline, impacting credit utilization, payment history, and debt-to-income ratio. - Clear Credit Reporting
Proper coding eliminates confusion for future lenders reviewing either borrower’s file.
Conclusion
When a loan is assumed by another party, the creditor must close out the original borrower’s tradeline, open a new tradeline for the assuming borrower, and apply the correct Metro 2® status codes and special comment codes. Doing so ensures compliance with the FCRA and presents a fair, accurate picture of both borrowers’ financial responsibilities.