DEFINITION of Annual Clean-Up
Annual clean up is a banking practice that requires a borrower to pay off all balances of any renewable lines of credit and keep them at zero for 30 to 60 days or even 90 consecutive days during a 12 month period. Although the annual clean up is a long-time tradition, it's becoming less common nowadays. Clean-ups aren't usually required on secured credit cards or lines.
Also known as the clean-up requirement.
BREAKING DOWN Annual Clean-Up
The annual clean up usually takes place when the customer is flush with cash. For instance, after a peak sales period when receivables have mostly been collected and cash needs for replenishing inventory are low. The clean-up shows that credit lines are being used only during periods of peak cash requirements and are not needed for the normal financing of the business.
Clean-up requirements are not required by most lenders. Many of today's banking institutions do not ask customers to "clean up" lines of credit, if clients' accounts are up-to-date and principal and interest payments are paid on time.
There can be other stipulations during an annual clean up period. Like not incurring overdrafts for 30 or 60 days for each year that the customer uses his or her revolving line of credit.
Another requirement might be that an outstanding balance stays within a specified limit. For example, a customer may be held under a constraint that for 60 days in a 12-month period, his or her principle balance cannot go past a set percentage of its full line of credit. These requirements would force the customer to either pay down the balance or restrict the use of his or her line of credit.