When an account is transferred from one lender to another, proper credit reporting is essential to maintain the accuracy and integrity of the consumer’s credit history. The Fair Credit Reporting Act (FCRA) requires that all furnished data be complete, accurate, and not misleading, particularly when a debt obligation changes hands between creditors.
Understanding Account Transfers
An account transfer typically occurs when:
- A loan is sold to another lender
- The servicing rights of an account change
- The lender restructures or reassigns portfolios through mergers or acquisitions
In all cases, the consumer’s obligation to repay the debt continues, but the ownership and servicing of the account changes.
Steps for Reporting Transferred Accounts
1. Original Creditor: Report the Account as Transferred
The original creditor must:
- Change the Account Status to:
“95 – Transferred” or the equivalent status code in Metro 2® - Set the Balance Amount and Scheduled Monthly Payment Amount to $0
- Retain and report the full payment history through the date of transfer
- Include a Special Comment Code, such as:
“AC – Account transferred”
This ensures that the credit report reflects that the creditor no longer owns or services the account.
2. New Creditor: Open a New Tradeline
The purchasing or new servicer must:
- Create a new tradeline with:
- A new Account Number
- A Date Opened reflecting when the new creditor acquired the account
- Report the current balance, payment terms, and scheduled payment amount
- Optionally include prior payment history if converted or provided by the seller
- Apply a Special Comment Code such as:
“AD – Account acquired from another lender”
This allows for continuity in the consumer’s credit report, even though the account details may reside under a new creditor.
Important Reporting Considerations
- Avoid Dual Active Balances: Once transferred, the original creditor must report a zero balance to prevent the appearance of duplicate debts.
- Preserve the Date of First Delinquency (DOFD): The new creditor must retain the original DOFD to ensure that any negative reporting ages off appropriately per FCRA timelines.
- Distinguish Between Transfers and Sales: If the account is sold but payment history is not retained by the buyer, the reporting procedures may differ slightly (as covered in prior articles).
FCRA Compliance Requirements
To comply with the FCRA, furnishers must:
- Ensure all reporting is accurate and reflective of the current account holder
- Update credit bureaus within the regular reporting cycle
- Retain all historical payment data when applicable
- Respond to any disputes related to the transfer or account status within the required 30-day investigation window
Impact on the Consumer’s Credit Report
- Preserves Credit History and Continuity
Accurate transfer reporting prevents disruptions in credit history, which can otherwise negatively impact scores. - Enables Transparent Credit Reviews
Lenders can easily trace the full history of an obligation, even if ownership has changed. - Protects Consumers from Duplicate Reporting
Proper coding ensures that only one active account is reflected for the obligation.
Conclusion
When an account is transferred to another lender, both the original and new furnishers have reporting responsibilities to ensure that the consumer’s credit history remains accurate, complete, and clear. Adhering to the proper Metro 2® codes and FCRA obligations protects both the consumer and the furnisher while preserving the integrity of the credit reporting system.