A report from the Urban Institute this week said 44 percent of adults in the Metroplex with credit reports had collection dings.
While this number has huge consequences on how much we pay for mortgages, car loans and credit cards, as well as access to jobs or rental housing, local experts caution that things are not as financially dire as the report may indicate.
Widely dispersed by the media this week, the report also said that one in three Americans with credit reports had collection problems hanging on their credit histories.
But a closer look at the report showed that some of these issues were as small as an unpaid parking ticket or membership fees. The figures include credit card debt that has already been charged off by the creditor as paid or settled, but still remains on your credit report for up to seven years. Much of that activity happened during the biggest financial collapse of a generation and may not represent a current debt problem.
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So let’s look at what’s really going on here.
While many are still digging their way out of the economic collapse, personal bankruptcies are down 11 percent as of March compared to the year before, said Mitchell Allen, founder and president of Benbrook-based Debt Education and Certification Foundation, a call-in service center for financial education now required pre- and post-bankruptcy.
“Bankruptcies have had a steady decline over the last four years,” he said. “We’ve had a 25 percent reduction over that period.”
Allen, who also is the author of A Survival Guide to Debt. (Greenleaf Book Group Press, $11.36 on Amazon.com) — one of the best books I’ve read on the subject — said that bankruptcies are down because of better personal financial management and tighter lending requirements.
“People noticeably aren’t spending as much and have saved a little more,” Allen said. “And there is a huge difference in the documentation required to get a loan or a credit card than there was before the recession.”
Because of the decline in bankruptcies, Allen’s company has scaled back from 40 to 30 employees, he said.
Consumer Credit Counseling Service of Greater Dallas, which provides a no-cost service, has also recently closed two offices in Tarrant County because of less activity and now operates just one office in Dallas, said Todd Mark, vice president of community affairs for the company.
“There is a lot less in terms of crisis calls today than we’ve seen in the past,” Mark said. “Nationally, CCCS reports that the demand for counseling is down 50 percent over the last year.”
Calls coming into the counseling service deal more with old credit problems than recent ones, Mark said.
“Most people are two or three years in recovery and are contacting us to deal with some of the issues of their past now that they have a stable income,” he said.
Those facing such credit repair issues should consider opening up new lines of credit, whether through a secured credit card or other type of loan, to re-establish health to their credit report, Mark advised.
“It’s like the lottery — you have to play to win,” Mark said. “Credit is about borrowing and paying it back. To have good credit, you have to display responsible behavior.”
Mark said the Urban Institute report showed more of the financial problems left over from the Great Recession.
“It’s representative of the wreckage left behind from the Great Recession,” he said. “It’s not a snapshot of today. The delinquency rate on credit cards today is just 5.3 percent and consumer debt overall is much lower.”
The collection agencies in the state also haven’t experienced a current uptick in business, said Tom Morgan, executive director of the American Collectors Association of Texas, which has 170 third-party collection agency and attorney members in the state.
But Morgan said his members are watching the “astronomical” rise in student loan debt.
“If those graduates are flipping burgers at McDonald’s, they are not going to be able to pay off student loan debt,” he said. “Many are underemployed.”
Another wave of credit problems may be coming. But in the meantime, clean up your credit report and you will save on interest rates and insurance, while having better access to rental property and jobs.
Dealing with debt collectors
Get your free credit report. To get a free copy of your credit report from each of the three credit bureaus, go to www.annualcreditreport.com. Type in the exact website name. To get your report in the mail, call toll-free 877-322-8228.
Review the reports. Check for any unpaid bills or debt collection measures on your credit reports for accuracy. If there are inaccuracies, make a list of everything that is inaccurate, outdated or missing and send a dispute letter to all three credit bureaus and to the company that initiated the mistake. If your identity has been stolen, put a fraud alert and/or freeze on your credit report.
Get free counseling. There are a number of no-cost credit counseling services available either in-person or by phone that offer help with budgeting, debt management, student loan defaults, housing and bankruptcy education. For a list of tips on how to choose a credit counselor, go to the Consumer Financial Protection Bureau at www.consumerfinance.gov.
Don’t hide. Whether it’s a hospital looking for you to pay an overdue medical bill or a collections agency hounding you, do not avoid the mail or phone. Ask for all information in the file on the unpaid bill, including the merchant, account number and date. Ask for a workout plan or reduction in the bill.
Complain. If you have trouble working with a collection agency, there are several places to turn. First, complain to the CFPB at www.consumerfinance.gov or call 855-411-2372. Also, the American Collectors Association of Texas will help with complaints at www.TexasCollectors.com or by calling its consumer hotline at 800-957-3328. Finally, the Better Business Bureau will take complaints at http://www.bbb.org/fort-worth or by calling 800-621-8566.