A recent study by the Urban Institute came back with some sobering findings, including the fact that over one in three American adults have at least one account in collections. In addition to finding who has accounts in collections, the study sought to establish a geographic pattern of where delinquent debts and accounts in collections are most prevalent.
The Findings
The Urban Institute study was completed using credit data from TransUnion, meaning that only consumers who have credit files were represented. The authors note that Americans in the lowest income ranges often cannot receive any credit at all, which excludes them from this data. The problem clearly extends beyond those in the lowest income brackets, though.
Nationally, 35.1 percent of consumers with credit reports had accounts in collection and 5.1 percent had debts that were over 30 days delinquent but had not yet converted into collections accounts.
The South was hit hardest by both collections accounts and late payments. Around 7.5 percent of the combined state population of Arkansas, Louisiana, Oklahoma and Texas have delinquent debts on their credit report and a concerning 43.6 percent have accounts in collections. The region as a whole suffers from relatively low income levels, so the fact that out-of-control debt is especially common there should not be entirely surprising.
Focusing on smaller geographic areas provides a starker picture. Just about half of Las Vegas’s residents with credit reports have an account in collections, for instance, and the state of Nevada has the highest average amount of debt in collections as well. The state is well-known for having particularly suffered during the housing crisis, so these findings naturally fit into that context.
Larger Implications
This problem isn’t new. The Urban Institute notes that a 2004 report by the Federal Reserve showed very similar findings: 36.5 percent of Americans with credit reports were found to have an account in collections then. The fact that accounts in collections have stayed relatively consistent in the time since isn’t much of a cause for celebration though.
Collections accounts can be seriously debilitating, both for your finances and for your credit file. Having an account with a collections agency on your credit report, or even a delinquent debt, could noticeably lower your credit score and make it consequentially difficult to open new lines of credit. Even if you’re able to get approved, these accounts could lead to higher interest rates or fees. Low credit scores could also make it harder to rent a home, get the best auto or home insurance terms or even to find a job.
In addition to the credit implications, high occurrences of accounts in collections can do damage to the national economy. Consumers who are struggling with underwater debts are less likely to have income left over for other spending.
Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.
Mike Goldstein is a Content Writer at Credit Karma. Since joining the team in June 2013, he’s been delivering the financial know-how on the daily. When away from work, you can find Mike watching hockey, Twittering for hours and frequenting trivia nights.
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