More than 35 Percent of American Adults are Currently in Collections: Report

A joint study from the think tank Urban Institute and debt buyer Encore Capital Group released today reported that more than 35 percent of U.S. adults with a credit report have accounts that qualify to be in some stage of the debt collection system. The average balance of those accounts is $5,178.

The study, “Delinquent Debt in America,” looked at a sample of TransUnion consumer credit reports in September 2013 to determine how many delinquent accounts were noted on the reports and how many collection tradelines could be found. In addition, the study’s authors looked at closed and/or charged off accounts still being reported to determine if they were eligible for collections, even if there was not a specific note of collection on the credit report.

“Collection accounts” for the purpose of this study included direct reports from collectors, accounts that had been charged-off and either sold or outsourced, accounts still being worked in-house after charge-off, and accounts being warehoused by creditors.

The result was that 35.1 percent of the credit reports examined showed collection accounts or those qualified for collections. Those results closely mirror a Federal Reserve study from 2004 which showed 36.5 percent of credit reports with an account in collections.

The authors noted that even the 35.1 percent figure is a bit too low; some 22 million low-income adults do not have credit files and were not represented at all in the study. Researchers used a random sample of 7 million TransUnion reports at a fixed point in time. The sample was out of a total population of 220 million Americans with credit files.

The study also included every type of debt imaginable, with the exception of mortgage debt. Researchers noted that, “While mortgage debt could result in collections activity, it is very rare.” In addition to traditional financial debt (credit cards, bank loans, etc.), the study found medical debt, utility bills, membership fees, phone bills, and many other kinds of debt being reported as charged-off on credit reports.

Among people with a report of debt in collections, the average amount owed was $5,178, with a median of $1,349.

The study also examined delinquency within the same credit report sample. It showed that 5.3 percent of Americans with a credit file were at least 30 days late on an account. Among people with debt past due, the average amount they need to pay to become current on that debt is $2,258.

The delinquency rate is much lower than the collection rate because typically only financial products are being actively reported to credit bureaus. This means that non-financial accounts comprise the vast majority of accounts in collection.

The study was conducted by the Urban Institute’s Center on Labor, Human Services, and Population and by Encore Capital’s Consumer Credit Research Institute.