A third of consumers with credit records had debt in collection last year

The report analyzed 2013 credit data from TransUnion to calculate how many Americans were behind on their bills. He looked at how many people had non-mortgage bills, such as credit card bills, child support payments and medical bills, that are so overdue that the account has since been closed and placed in collection.

The researchers relied on a random sample of 7 million people with data reported to credit bureaus in 2013 to estimate what share of the 220 million Americans with credit records have debt in collection. About 22 million low-income adults who had no credit history were not represented in the study.

This is the first time the Urban Institute has calculated the collection figure, but Americans may have been saddled with debt for some time: the researchers noted that the 35% is basically unchanged from when where the Federal Reserve studied the issue in 2004 and found that 36.5% of people with credit reports had debt in collection.

Debts sent to collections ranged from $25 at the low end to over $125,000 at the high end. Many consumers were burned for relatively small amounts — about 10% of debts were under $125, Ratcliffe says. But the median debt, $1,350, is still quite significant, she adds.

Nevada was the hardest hit, with 47% of consumers with a credit report showing debt in collection – a mark that researchers say may stem from the housing crisis when people struggling to meeting their mortgage payments may have fallen behind other financial obligations.

In 12 states, including the District of Columbia, more than 40% of residents with a credit history have a collection bill. This includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, South Carolina, Texas, and West Virginia.

In contrast, Minnesota, North Dakota, and South Dakota each have about 20% of residents with credit records who reported collection debt.

The expression “debt collection” normally evokes face harassing phone calls, repeated letters and other efforts from third parties attempting to collect payment. But not all consumers are harassed: Some people may not even know they’ve been sent for collection until they check their credit report, the study notes.

This does not mean that the debts have not caused any setbacks. Bills sent to collections can stay on a person’s credit report for up to seven years, hurting a consumer’s credit score and, in turn, hindering their chances of accessing loans, credit cards and other forms of borrowing. A bad credit score can also hurt a person’s ability to land a job or their chances of being approved for an apartment, Ratcliffe says. “It could affect you in many ways,” she adds.

The study found that the share of people with delinquent debt, meaning they are at least 30 days past due in paying non-mortgage debt, was much lower: 1 in 20 people. This includes people who are late with credit card bills, student loan payments, and car loans. The majority of these people, 79%, also had collection debts.

However, since some bills, such as medical bills and parking tickets, may not appear on a person’s credit score until they are sent to collections, the total share of overdue people on their bills may actually be much higher.

The report did not break down the types of invoices most likely to be sent for collection and the researchers could not distinguish between debts that were sent for collection years ago and those that were added more recently.

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