I don't think this is a legit statistic in that the data is somewhat flawed based on modern interpretations of a credit report.
How many people have had an overdue library book, or parking ticket, or similar that just was forgotten and was placed on their credit report and is termed a "nuiscance" collection under the FICO 8 mantra? Likewise with how absurdly complicated and sometimes outright wrong the modern medical industry is with costs, insurance payments, etc ad nasuem leading to silly if not outright stupid collections sometimes (through no fault of the borrower in some cases) that get tossed onto the credit report? Not to mention all the issue with the various JDB's and outright illegal practices sometimes.
I could go on but credit reporting has become so ubiquitous without front-side protections (it's all up to the consumer or a 3rd party source to correct the errors) that I think the 1/3 statistic is somewhat meaningless: it'd be one thing if we had iron-clad policies as to what could be listed as a collection, but we just don't and as such all sorts of sloppy things get put on there which I don't personally consider to be "real" collections as vs. people truly defaulting on payments on a loan or similar.
@pizzadude wrote:
@Revelate wrote:I don't think this is a legit statistic in that the data is somewhat flawed based on modern interpretations of a credit report.
How many people have had an overdue library book, or parking ticket, or similar that just was forgotten and was placed on their credit report and is termed a "nuiscance" collection under the FICO 8 mantra? Likewise with how absurdly complicated and sometimes outright wrong the modern medical industry is with costs, insurance payments, etc ad nasuem leading to silly if not outright stupid collections sometimes (through no fault of the borrower in some cases) that get tossed onto the credit report? Not to mention all the issue with the various JDB's and outright illegal practices sometimes.
I could go on but credit reporting has become so ubiquitous without front-side protections (it's all up to the consumer or a 3rd party source to correct the errors) that I think the 1/3 statistic is somewhat meaningless: it'd be one thing if we had iron-clad policies as to what could be listed as a collection, but we just don't and as such all sorts of sloppy things get put on there which I don't personally consider to be "real" collections as vs. people truly defaulting on payments on a loan or similar.
Very good points Rev. There's no mention of whether they screened the collections for "nuisance" amounts, as you described -- or if they removed duplicates ( same collection multiple CAs ). And obviously there are numerous situations where collections are erroneous, and should have never occurred in the first place.
They did mention that the survey was based on a sampling of TU credit files, I think 7million?. I'll have to look for a link to the actual study report.
Oh, I suspect their data was completely accurate; it's simply the possible interpretation of said data I think is suspect and it may be a symptom of reporting issues rather than an accurate representation of consumer default. I think both are problematic for different reasons, but it's not necessarily a Chicken Little scenario which it could easily be read as: without a documentable scrubbing of the data, I don't know if it's realistic to pull anything meaningful out of the statistic as it's assuredly somewhere on the line between the consumers completely suck, and the credit reporting system completely sucks points.
@lonelyisland wrote:Actual study has a little bit more to say:
http://www.urban.org/publications/413191.html
Roughly 1 out of 20 people with a credit file (5.3 percent) are at least 30 days late on a credit card or other non-mortgage account (e.g., automobile loan, student loan). In other words, they have debt that has been reported as past due to the credit bureau.
An alarming 35 percent of people with credit files have debt in collections reported in these files. This percentage is nearly identical to results from a 2004 analysis of credit bureau data by the Federal Reserve, which found that 36.5 percent of people with credit reports had debt in collections reported in their files (Avery et al. 2004)
The amount of debt in collections varies widely by person, from less than $25 to more than $125,000. Among people with a report of debt in collections, the average amount owed is $5,178. Compared with debt past due, a broader set of debts can enter collection status (e.g., medical bills, parking tickets, membership fees), and they can remain on a credit report for up to seven years. People with both types of delinquent debt (collections and past due) have higher average collections debt than those with only collections debt—$9,123 versus $4,641, respectively.
Thank you for posting the report! Interesting stuff, though I would've like to have seen it broken out by collection type (medical which is all sorts of proving that cluster is only half a word vs. otherwise as an example) or maybe size distribution of individual collection (I am struggling to think that someone with a stupid $50 library fine is really financially distressed) as I still don't think that a simple summation via an average provides an accurate representation but admittedly the number is still staggering.