What Is an Open-Ended Account?

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When it comes to the statute of limitations on debt - the time period that a debt is legally enforceable - debts can be categorized in one of four ways: oral contract, written contract, promissory note, and open-ended accounts.

In each state, the specific statute of limitations can be different depending on the type of debt you have. So, it's important to know which type of debt you're dealing with so you're using the right timeframe to consider whether that debt is past the statute of limitations.

Here we'll learn more about open-ended accounts.

An Open-Ended Account

An open-ended account is an account that has a varying, revolving balance. It's an account that you can borrow from over and over as long as you repay the balance. Open-ended accounts have a pre-approved limit that you're allowed to have outstanding at any given time. Often, transactions that exceed this are not processed. A credit card and a line of credit card both examples of open-ended accounts.

Open-ended accounts give you more flexibility on the amount you borrow at once. You can use a little or a lot of the available credit depending on what you need. You also have flexibility in how you repay what you've borrowed. The creditor will set a low minimum payment that you must make by the due date. You can choose to pay the minimum amount or you can pay an amount higher than that.

How Open-Ended Accounts Become Bad Debt

As long as you make your payments as agreed, your open-ended account will remain in good standing.

However, once you fall behind on payments, you account goes into a past due status. The creditor will take actions to get you to take care of your account. This includes things like calling you, sending letters, and reporting late payments to the credit bureaus.

After a certain number of missed payments and no indication that you're going to catch back up, your account will go into default.

Once there is no longer any activity on your account, the clock for the statute of limitations starts ticking. Some creditors may choose to sue you for an unpaid debt but must do so while the statute of limitations is still in effect. Once the statute of limitations expires, you can use that fact as a defense against any lawsuits that come against you.

The Statute of Limitations on Open-Ended Accounts

In many states, open-ended accounts have the shortest statute of limitations. These debts will generally become legally unenforceable before other types of debts. Use the table below to find out the statute of limitations for open-ended accounts in your state. If you're faced with a lawsuit from a creditor, consult with an attorney to verify the timing for the statute of limitations and discuss how you can use it as a defense against your lawsuit.

Arkansas3New Hampshire3
California4New Jersey6
Colorado6New Mexico4
Connecticut3New York6
Delaware4North Carolina3
Florida4North Dakota6
Indiana6Rhode Island10
Iowa5South Carolina3
Kansas3South Dakota6
Minnesota6West Virginia5

The statute of limitations continues to run as long as there is no activity on the account. You can restart the statute of limitations if you make a payment (even if it's a partial payment), a payment arrangement, or even if you acknowledge the debt is yours in some cases.