In cases where a creditor sells an account to another company, and the purchasing entity does not convert or report the prior payment history, both the seller and the purchaser must follow specific credit reporting procedures to ensure compliance with the Fair Credit Reporting Act (FCRA). These situations are common in collections, portfolio sales, and debt purchasing scenarios.
The key requirement is to report the discontinuity in account history clearly and accurately, avoiding confusion or duplication in the consumer’s credit file.
Understanding the Reporting Scenario
This reporting model assumes that the original creditor will report the account as closed and sold, and the new purchaser will begin reporting a new account without importing historical payment data.
While this may seem like a break in continuity, it is acceptable under FCRA as long as the information is:
- Accurate
- Complete
- Transparent
Reporting Responsibilities
1. Original Creditor (Seller) Reporting
The original creditor must:
- Change the Account Status to “Sold to another lender”
- Set the Balance Amount and Scheduled Monthly Payment Amount to zero
- Keep the full payment history on record up to the date the account was sold
- Include a Special Comment Code such as:
- “Account sold to another lender”
This communicates that the account is no longer with the original creditor and avoids future reporting errors.
2. Purchasing Company Reporting (No Historical Conversion)
When the purchaser does not convert the original history:
- Open a new tradeline under the purchaser’s name
- Use a new Date Opened, reflecting the date the account was acquired—not the original loan date
- Report the current balance and payment terms, based on the terms agreed to by the new creditor
- Do not report previous payment history or delinquency data from the original creditor
- Apply a Special Comment Code such as:
- “Account purchased from another lender”
This distinguishes the new account from an original obligation and makes it clear that the purchaser is now the creditor of record.
Important Reporting Considerations
- DOFD Must Still Be Retained: Even though the payment history is not imported, the Date of First Delinquency (DOFD) from the original account must still be used to ensure accurate aging of negative items.
- Avoid Duplicate Reporting: The original account should reflect closure with a zero balance, while the new account begins as a separate tradeline with no overlapping payment history.
- Use Accurate and Distinct Account Numbers: This helps CRAs differentiate the two tradelines and prevents confusion in the consumer’s report.
FCRA Compliance Requirements
Both parties must ensure that:
- The consumer is not reported as owing the same balance to two creditors
- The DOFD is preserved to govern the 7-year retention period for delinquencies
- The information furnished is accurate, complete, and reported within standard timelines
Impact on the Consumer’s Credit Report
- Clear Transition of Ownership
Lenders and consumers can see that the debt changed hands, with no duplication of obligation. - Proper Aging of Negative Information
By preserving the original DOFD, the account is removed at the correct time, avoiding extended derogatory reporting. - No Misleading Payment History
Since the new creditor is not reporting past performance, there is no risk of misstating payment compliance.
Conclusion
When a purchaser does not convert the original account history, careful reporting is essential to ensure that credit reports remain accurate and fair. By closing the seller’s tradeline properly and creating a new, distinct tradeline for the purchaser—with clear status codes and preserved DOFD—both parties fulfill their responsibilities under the FCRA. This approach protects consumers from misrepresentation and ensures a clear, compliant credit reporting record.