More than a third of Americans with credit files have a debt in collections, the Urban Institute reports in its new analysis of delinquent debt in America. Many of these consumers are unaware of the collection account, and a large share of these debtors have no traditional credit history, as rent, utility and medical bills are sent to collections if they’re past due but are not typically reported to credit bureaus if current.
The Urban Institute’s numbers are based on 2013 credit bureau data from TransUnion and do not include information on the 22 million Americans (9% of the population) without credit files.
Among consumers with a credit report, 5.3% are at least 30 days past due on a credit card or other non-mortgage account. For these consumers, escaping delinquency can be quite challenging, with the average consumer with a past-due debt needing to pay $2,258 to return to current status on the account, the report says.
Oftentimes, those delinquent debts are sent to collections, an industry with seemingly no shortage in business. A Federal Reserve report from 2004 found 36.5% of consumers with credit reports had an account in collections. The years between the Fed and Urban reports were nothing short of tumultuous, but overall, collections accounts have maintained a strong presence in Americans’ finances.
Consumers with a collection account owed an average $5,178, the Urban Institute found, but bills sent to debt collectors vary from the seemingly insignificant (parking tickets, library fines, membership dues) to the overwhelming (unpaid rent, bounced checks, student loans). For people with a combination of accounts past due and in collections, they owed debt collectors $9,123 on average, as opposed to people with only collections accounts and an average $4,641 outstanding. The research showed Americans with debt reported by collections agencies are heavily concentrated in the South.
Do You Have a Bill in Collections?
You may not even be aware you have a collection account. Sometimes, debt collectors are unable to reach debtors, particularly if your contact information has changed since your bill went unpaid, and collections items will damage your credit standing without your knowledge.
“Consumers are sometimes shocked to discover collection accounts on their credit reports, especially if they didn’t know a bill was past due,” said Gerri Detweiler, Credit.com’s director of consumer education. “Medical bills that slip through the cracks, or final utility or cell phone bills may show up as collection accounts even before the consumer knows there is a problem.”
Paid or not, collection accounts are reported for 7 years plus 180 days from the date you first fell behind. Some credit scoring models don’t count paid collections, but that’s often not the case. Here are seven things you should know about how collection accounts affect your credit scores.
To see if you have a collection account on your credit report, you can request your free annual credit reports from credit bureaus Equifax, Experian and TransUnion. You can check your credit more frequently by monitoring your credit scores, which will drop if a negative item pops up on your credit report after you’ve most recently checked it. You can watch your credit for collection accounts by getting your free credit scores through Credit.com.
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- 5 Tips for Consolidating Credit Card Debt
- Top 10 Debt Collection Rights
Image: Mia Caruana