Even if nothing seems amiss, chances are that you know people who are having trouble paying their bills.
According to a new reportopens PDF file from the Urban Institute, an alarming number of Americans (35%) have debt in collections. Unpaid bills typically end up in collections 180 days after their due date.
The Urban Institute, which analyzed the credit files of seven million Americans, said this high percentage of unpaid bills is actually understated because the researchers didn’t have access to the nine percent of Americans (22 million), who aren’t tracked by TransUnion and the other credit bureaus. These people are more likely to be turning to payday loans and pawnshops for cash.
The typical amount of money that people who are in serious arrears on their unpaid bills owe is $5,178. The analysts spotted uncollected debt ranging from $25 to more than $125,000. The debt can come from such sources as credit cards, medical and utility bills.
Americans who are experiencing the most difficulty paying their bills live in the South. About 40% of Southerners have debt that has ended up in collection. New England residents (25%) generated the lowest percentage of seriously past-due bills.
Among the 50 states, Nevada, which was hard hit by the housing crisis, has the greatest percentage of residents (47%) with debt in collection. The states with the least number of people in trouble (under 20%) are Minnesota, North Dakota and South Dakota.
What’s scary about these statistics is that some people who have traditionally enjoyed excellent credit histories might not even know that any of their bills are seriously past due. Some individuals, for instance, might believe that an insurer has paid an outstanding medical bill.
Warding off that nightmare scenario is an excellent reason why consumers should regularly check their credit report from the three major credit bureaus.
This week, Fair Isaac Corp., which is the creator of the popular FICO credit score, announced a new way of tabulating credit scores that will help millions of Americans who have had debt in collection. Fair Isaac said it would no longer include the record of a consumer falling behind in a bill payment if it has been paid or settled with a collection agency. More than nine million Americans will immediately benefit from this change.
The firm said it would also give less weight to unpaid medical bill debt. There are more than 64 million Americans who have seriously delinquent medical bills marring their credit reports.