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35% of American Adults Have Debt 'In Collections'
New submitter meeotch writes: According to a new study by the Urban Institute, 35% of U.S. adults with a credit history (91% of the adult population of the U.S.) have debt "in collections" — a status generally not acquired until payments are at least 180 days past due. Debt problems seem to be worse in the South, with states hovering in the 40%+ range, while the Northeast has it better, at less than 30%. The study's authors claim their findings actually underrepresent low-income consumers, because "adults without a credit file are more likely to be financially disadvantaged."
Oddly, only 5% of adults have debt 30-180 days past due. This latter fact is partially accounted for by the fact that a broader range of debt can enter "in collections" status than "past due" status (e.g. parking tickets)... But also perhaps demonstrates that as one falls far enough along the debt spiral, escape becomes impossible. Particularly in the case of high-interest debt such as credit cards — the issuers of which cluster in states such as South Dakota, following a 1978 Supreme Court ruling that found that states' usury laws did not apply to banks headquartered in other states.
Even taking into account the folks who lost a parking ticket under their passenger seat, 35% is a pretty shocking number. Anyone have other theories why this number is so much higher than the 5% of people who are just "late"? How about some napkin math on the debt spiral?
Oddly, only 5% of adults have debt 30-180 days past due. This latter fact is partially accounted for by the fact that a broader range of debt can enter "in collections" status than "past due" status (e.g. parking tickets)... But also perhaps demonstrates that as one falls far enough along the debt spiral, escape becomes impossible. Particularly in the case of high-interest debt such as credit cards — the issuers of which cluster in states such as South Dakota, following a 1978 Supreme Court ruling that found that states' usury laws did not apply to banks headquartered in other states.
Even taking into account the folks who lost a parking ticket under their passenger seat, 35% is a pretty shocking number. Anyone have other theories why this number is so much higher than the 5% of people who are just "late"? How about some napkin math on the debt spiral?
is a pyramid scheme.
One reason that I'm sure is a factor in the difference, is that companies are less inclined to bother reporting the "past due" status. It's overhead for them to do it, and there's not really any benefit, but when someone hits the collections threshold, they'll go ahead and take the time to report it.
Given the trend of income inequality it would be no surprise of any sort of abrupt riots to the magnitudes of some civil rights leader got killed
This was discussed on Fatwallet today, and most of the sensationalism was debunked quickly.
http://www.fatwallet.com/forum...
A few juicy tidbits:
More details: "An alarming 35 percent of people with credit files have debt in collections reported in these file s . 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 report s had debt in collections reported in their file s (Avery et al. 2004). Note that consumers themselves may not realize they have debt in collections. Some consumers report becoming aware of this debt only when they review their credit report (CFPB 2013)"
...and...
The actual source: http://www.urban.org/publicati...
Only 5.3% are currently past due on a bill. "5.3 percent of people with a credit file have a report of past due debt, indicating they are between 30 and 180 days late on a nonmortgage payment"
So most of the people have old debts which could be up to 7 years old.
So there you go. A lot of us have an outstanding medical bill on our credit reports, and we should check them more often.
Once you have something go into collections it is always there until you pay it. (medical bills/school debt probably drives a lot of this)
You're only 30-90 days lat for a short period.
"Many consumers were burned for relatively small amounts -- about 10 percent of the debts were smaller than $125, Ratcliffe says"
This kind of thing probably drives the numbers way up too. That late fee from blockbuster, etc.
The whole point of a "credit score" is horribly broken. In order to get approved for debt, you must have debt. If you have money in the bank and no monthly debt payments you have a reduced score. It's a SCAM! A scheme to make sure that you are constantly in debt, and yet it's perfectly legal. Living in debt constantly costs you money, and for what? So that you can have more debt? Wow!
The fact that people don't get this, or simply don't care, is very telling.
Personally I have almost no debt, just my car payment. I don't have a lot of debt so have a laughably low credit score. If I don't have cash I can wait to buy something. Actually since I manage my personal finances very well purchasing something I want is never an issue.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
The Middle Class didn't.
The Poor got taken to the cleaners.
Thank god my investments in Guillotine and Pitchfork franchises are proving to be fruitful.
-- Tigger warning: This post may contain tiggers! --
2-3 months ago I got a notice from the State (CA) collection agency stating I owed them $200 from 2007, along with warnings they could garnish my salary, garnish an incomtax refund, take my firstborn, etc. First I've heard of it. They have a number to call to ask questions. Half the time the phone isn't answered, the other half I leave voicemail that is never returned. So I'm prolly in collections, along with the credit ding, for a 7 year debt I knew nothing about and can't get any information on.
I'm about to spend the money for a registered letter to ask WTF, but I'll bet they don't respond to it.
Farking asshats.
In order to get approved for debt, you must have debt.
No, to get approved for debt you need one of two things:
1. A credit history. That's not necessarily debt, it is a history of handling small debts that you've paid off.
2. Belong to a demographic that the credit companies are chasing.
When I was in college, the stores were deluging me with offers of credit cards because of my age/college while the credit union followed rule 1 and repeatedly denied me a credit card. In recent years, the largest flood of credit card offers were when I had no debt at all, but had a paid-off car loan.
It's a SCAM! A scheme to make sure that you are constantly in debt,
Nobody can force you to go into debt.
The simple fact of the matter is, if you are in collections, most companies get the ability to rape you. They will be as harsh as possible when talking to you so that you don't want to negotiate. This equals more money in interest.
Student loans threatened me into work I couldn't physically do, and was relying on medicaid to keep my fake leg working. The threats forced my work over what I could do and pushed me into homelessness for a time.
I tried calling the collectors with the last of my money and all they could do is tell me to pay $14,000 in student loans in 3 monthes. Despite their threats causing me $100k in medical bills, multiple suicide attempts, and lost work time.
Since I have stabalized financially and I have been talking to them more, you soon realize the system was made to rape you from the beginning. It's a lot easier to face when you realize you aren't necessarily the evil one.
You can ask specific questions, but the department of education will refuse to give any specifics. The best I had gotten was a letter that read, "We have investigated your claims [what was investigated specifically was not stated], and we have found no issues. We have no departments that can handle this matter and if you would like to pursuie this it will have to be through litigation."
This is the US of A. I'll hang myself at a college before
I'm threatened into [work I can't do] -> [homelessness]. I'll do my best, but when the interest is $700 a month, you know the company you were working with had no serious intension of helping to pay back any dept, but only to cause you new ones.
Children are simultaneously the most expensive and least liquid luxury you can get. If it's hard to make ends meet, maybe you should have gotten something more sensible and resalable, like a boat.
"Because Science" is one step from "Because old book". Try "Because of my experiment testing my falsifiable assertion".
Anyone have other theories why this number is so much higher than the 5% of people who are just "late"?
The first window lasts from 0.08 years to 0.5 years, while the second window lasts from 0.5 years to 7.0 years. The relative window width is (7.0 - 0.5) / (0.5 - 0.08) = 6.5 / 0.42 = 15.47. So if each person only had zero or one debts, and no debt was ever paid off, you'd expect there to be 15.47 times as many debt holders in the second window as in the first. 15.47 * 5% = 77%. So the fact that it is at 35% means that there is some combination of people being in both categories and people paying off their debt while it is "In Collections." If it was 5%, or 77%, you'd be able to make a pretty solid guess that something was hinky, but 35% is in the "could be perfectly reasonable" range.
I'll also echo the sentiment that some creditors do a horrible job of billing. I had a large outstanding debt for years before finding it on my credit report. The company had a typo in my address from the original signup, but had been getting copies of my credit report which had my correct address. They sent all the bills to the incorrect address they had on file, never once contacted me at the address on file with the credit reporting company they had been contacting.
Stop-Prism.org: Opt Out of Surveillance
The Michigan teachers union sics bill collector on former members after they legally opted out of the union:
http://poorrichardsnews.com/po...
Just accompanied my son to a credit union to begin to build his credit with a secured card... he wants a newer vehicle, has saved well, and was able to transfer the necessary security from his account with the financial institution for his pending secured credit line.
His loan officer told him his credit score would reflect more positively if he used only about 60% of his available credit line each month, and left 15 or 20 dollars per month in carryover balance, instead of paying off the entire balance each month.
Truth or bullshit?
Happiness in intelligent people is the rarest thing I know.
Ernest Hemingway
I ran into this a few years ago. Basically, I got a random call saying I owed about $1k. After asking for the debt verification letter to be sent, I was able to figure out that the debt in question was for some daycare provider in 2009, 3 years before receiving my first collections call. Problem was, we had moved out of that area when this supposed debt occurred, meaning it shouldn't have been charged in the first place. The daycare provider couldn't produce any documentation to support their claim, saying that it happened 3 years ago and they can't find anything. I then called the debt collection agency back and asked for the debt to be discharged as a result, but they said the daycare center claims the debt is valid and won't reverse it. I then opened a ticket with TransUnion (where the collections was listed) and explained the situation. 30 days later I got a letter saying the looked into the debt and determined that it is valid, despite having no documentation to back the debt up, and my documentation showing I wasn't even living in that area. Best part is, I followed up with TansUnion to find out how they validated the debt, and was told they called the daycare center and simply asked them if it was valid; no proof or documentation or anything provided. The whole system is a racket, and there's basically no way to get collections reversed unless the debt involves identity theft. The original creditor has no interest in the truth because they already sold the debt. The collection agency has no interest in the truth because they have already bought the debt. The credit industry has no interest in the truth because it's their core business. The only reason this whole thing hasn't bothered me too much is because since I basically went 4 years before realizing the debt existed, I can just wait for it to fall off my report.
Personally I have almost no debt, just my car payment.
We opted out the debt economy years ago. We froze our credit reports and paid cash for our last house, car and motorcycle. We could have some dinky medical bill or something that slipped through the cracks in collections and not even know it. We might not even find out about it until we update our address when the credit freezes expire and we need to renew them.
You don't need credit cards, car loans, or mortgages. We're living proof. We fly, stay at hotels, rent cars all the things people think they need credit to do. We don't pay more for car insurance, though we do have the occasional utility deposit.
Nothing you can buy with credit feels as good as opting out of the debt economy.
That's our life, the big wheel of shit. - The Fat Man, Blue Tango Salvage
I pay for everything cash, so I have a low credit score. How the fuck does that work?
Sure, you might be independantly wealthy and just buy everything with cash... or maybe you live day to day off the money you make turning in aluminum cans. In other words, your score is low because they can't tell you from hobo.
I paid for my car cash, I pay my rent cash, I pay the cable company cash.
I have over $30k in the bank and I have monthly paychecks.
None of which is reported to a credit scoring agency.
So I should have a much higher credit rating than someone who is constantly paying with credit cards in my opinion.
You are probably more credit worthy, and probably deserve a higher score, but you aren't playing the game to get one.
I wouldn't even mind so much, except that when renting a house they do a background check, and they expect to find a credit history, which I don't have.
So get one. Apply for a card, buy some stuff you were planning to buy anyway, pay it off... costs you NOTHING. And you get a higher score on the credit rating game, for when you need it.
Yes, it's going to cut down on the number of people who are in collection for medium-large debts because they got medical services they couldn't afford at the time and haven't been able to pay off (either yet, or ever.)
But it's going to significantly increase the number of people who are in collection for small debts because doctors or insurers paid the wrong amount. I've got one doctor's office that usually doesn't charge me a copay, but after the insurance gets around to paying them, there's an amount of money left over that's within a dollar or so of the amount the copay would have been, so their medical group gets around to sending me a bill, and it's extremely difficult to keep track of which of those bills are actually correct and final or which ones are rolling totals of insurance confusion in progress. Usually those get straightened out after a while, but sometimes they've called me and there's $20 that's going to go to collection if I don't pay right away. There's an X-ray lab that has a negotiated rate with my insurance company that's a lot lower than their rack rate; I went to them one January, and insurance didn't pay them anything because I hadn't reached my deductible for the year yet, and the lab billed me the rack rate, not the negotiated rate (I paid them the correct amount, and explained why, and the rest eventually ended up in collection because they couldn't figure out how to deal with it.)
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
The whole point of a "credit score" is horribly broken.
The idea isn't bad. The implementation is okay, though it can be gamed to some degree. The biggest issue most people actually have with it comes down to a serious lack of financial education. It isn't the easiest or most intuitive system; it's the one that's worked well for a long time thanks to a lot of trial and error.
In order to get approved for debt, you must have debt.
Now that's just untrue. If it were true, you'd have a chicken and egg problem with debt. The reality is that certain types of credit/debt (e.g. student loans) don't care whether you have other credit/debts or not. Some types of credit/debt (e.g. credit cards) are rate-sensitive to whether you've demonstrated - through your behavior with previous credit/debts - the likelihood that you'll stick to the terms of the new credit vehicle. Some types of credit/debt (e.g. a mortgage) are much more difficult to get at all without a demonstrated ability to manage credit/debt responsibly. That's due to the fact that different types of credit have different risk profiles. A credit card company can set a ceiling on how much the issuer can lose if you're a high or unknown risk. When it comes to a mortgage, you're talking about tying yourself to the borrower for a very long time with an asset that could tank in value anywhere during that time. Since student loans survive everything up to and including the end of the world, they're easy to get.
If you have money in the bank and no monthly debt payments you have a reduced score.
The first part is another myth. The amount of money you have in the bank means absolutely zero to a FICO score. It means something to a mortgage company, but that's it. FICO scores are completely unaffected by money in the bank. The second is somewhat true, depending on circumstances. Cracking 800 is going to be very tough without some sort of installment loan (vehicle or mortgage). That said, you can hit top-tier rate scores (740+, even 760+) without either of those. You can have credit cards you pay off every single month and hit the scores you need to secure the best available rates. No debt required. It's just tougher.
It's a SCAM! A scheme to make sure that you are constantly in debt, and yet it's perfectly legal.
Wait, what? People with the highest FICO scores typically have little to no debt, aside from perhaps a mortgage, maybe a car loan. It's rare that they'll have any serious credit card debt or other revolving accounts with any substantial balances. In fact, having substantial balances on your revolving credit accounts hurts your score. The point isn't to keep anyone in debt, it's to provide a score that tells potential lenders how likely it is that an individual they've never met before will stick to the terms of their agreement if they're granted credit.
I don't have a lot of debt so have a laughably low credit score.
If your credit score is "laughably low", it isn't because you don't have enough debt. In reality, what drives your score is 5 simple things. The largest component is payment history. Don't pay back debts? Bad history, bad score. A perfect score here is no delinquencies or bankruptcies. Any accounts listed should be "paid as agreed" or something to that effect. If you have no debts, pay your utilities and medical bills (things that report delinquencies to the credit reporting companies), and pay that car loan on time, you should have a perfect score here. The second is the balance of all your revolving accounts. No balances on credit cards? Low balances relative to total available credit? Perfect or near perfect score. That's 65% of the total score right there. More info here: http://www.myfico.com/credited... (bank balance isn't listed because it doesn't apply).
-- "Government is the great fiction through which everybody endeavors to live at the expense of everybody else."
I haven't had a credit card in over 10 years, and my credit is fantastic. Of course, I've had a couple of car loans, and a home loan... all in good standing and/or paid off, but I never had a credit card when I got any of those loans either, so it certainly wasn't required for good credit.
The only thing I even ponder having a credit card for is for emergency purposes only. I'd consider something with no fees (unless used) for a rainy day backup, but instead of doing that, we've chosen to just have our own rainy day fund.
I am very thankful for the credit card companies though. I don't think that I could heat our home for free without their contribution to our junk mail pile. The rest of the junk mail on it's own just wouldn't be enough..
It's a SCAM!
It's not a scam, but you do have to look at who the score is for. It is not for you, it is for lenders. They want to know how good of a risk you are, and to establish that you need a track record. It is trivial to maintain a good track record - simply use a credit card and pay it off. It will cost you nothing, or even make you money if you game the system like those Fatwallet acolytes.
W..w..W - Willy Waterloo washes Warren Wiggins who is washing Waldo Woo.
Children are something like 80% water. Sounds pretty liquid to me.
get a credit card and charge $100 a month and pay it off. or charge your living expenses and pay it off
simple
And make sure it's a cash back card ;) I've made thousands back in rewards and never paid a single dime of interest. Credit cards are a scam; make it a game to see how much you can scam out of the scammers!
And that's the problem with the publics modern perception of credit. Because I do not have a credit card and suggest that you shouldn't either, I'm considered a quack. I buy just as much useless garbage as anyone that modded me down does. I go on vacations, I order things online, I buy soda at the gas station. The only difference is I don't pay a 7% to 30% fee to do all of those things. And that is exactly what a credit card does. It doesn't help your credit. That's a lie driven by marketing campaigns of credit card companies.
You no doubt got modded down because you have virtually every fact you mention entirely wrong. Having a credit card doesn't mean carrying a balance month-to-month, and you don't pay a single penny extra if you don't carry a balance (unless you stupidly sign up for a card with an an annual fee). I actually get 1.5 to 6% back on all my purchases, depending on how they categorize it. Now, you could argue that we pay 3%-ish more for everything as a result of stores passing on the transaction fees to their customers, but then, so do you, and you don't even get the benefits as a result.
And as for your credit rating, sorry, but yes, having a small number of regularly-paid cards most certainly does improve your credit, compared with having no credit history. I could provide you with an hundred links discussing the optimal number of cards and how much to cycle through them monthly, but you could already have done so and apparently chose not to.
Yes, we have a sick view of what "credit" means as a society. That doesn't invalidate the concept itself, just points a damning finger at how badly we tend to misuse it. Kudos to you for at least living within your means (and I mean that sincerely), but you massively overstate the case-for-cash while remaining blissfully ignorant of how credit cards really work in the modern world.
So I should have a much higher credit rating than someone who is constantly paying with credit cards in my opinion.
Not necessarily. There's a reason it's called a "credit" score, not a "cash" score. You need to be able to demonstrate that you can handle credit responsibly. Believe it or not, MOST people who pay cash all the time are forced to, because they don't have reliable enough income or reliable spending methods, and no one would give them a credit card, even if they applied (or certainly not a good one).
So, you need to prove to banks who might lend you money that IF you go into debt (or even have the possibility of going into debt, like having credit lines you don't necessarily use) that you will make regular payments and be able to handle the debt. Frankly, I'd view you as a risk too if you had no payment history. It's great that you pay in cash, but lots of other people do who aren't as responsible with you and would not be a good loan risk.
So get one. Apply for a card, buy some stuff you were planning to buy anyway, pay it off... costs you NOTHING. And you get a higher score on the credit rating game, for when you need it.
Yep -- this isn't rocket science. Get a credit card, use it to buy stuff, wait for the statement, and pay off immediately. You will pay no interest, but since you received a statement with a balance, your report will show records of credit utilization and regular payments. You might need to apply for a crappy card at first if you really have NO history, but just always pay it off every month. In a couple years, you will even be able to move up to a rewards card and earn money off of your credit card, all while paying no interest AND establishing a credit history.
I don't pay 7% or 30% for these either. Had credit cards for over a decade. I think I paid $0.50 once when I accidentally charged the wrong card and didn't notice a (small) bill.
It's not about not having a credit card, it's about living within your means to have as little outstanding debt as possible (which may be none). This applies to credit cards but also to high-interest loans (car loans, money broker, whatever). There are plenty of useful things about having a CC, the foremost of them being that if somebody racks up charges on your CC, it's a whole lot easier to deal with than if somebody drains your bank account using a debit card etc.
Medical bills need to be communicated up front, not after the fact.
I once went to a US hospital, I asked how much would it cost, they wouldn't tell me. I asked will it in the range of $100, or $1000, or $10,000 still wouldn't tell me.
How is any sane person meant to go into a contract without actually knowing even an approximate price. They should say would you like Xrays with that for $X.
how can there be a meeting of minds http://en.wikipedia.org/wiki/M... to form a valid contract
His loan officer told him his credit score would reflect more positively if he used only about 60% of his available credit line each month, and left 15 or 20 dollars per month in carryover balance, instead of paying off the entire balance each month.
Truth or bullshit?
I'm going to have to call BS on this one (speaking as someone with a credit score over 800 for quite a few years); I've never carried a balance on a credit card to get there.
First off, 60% credit utilization is too high. I haven't looked up the numbers recently, but there are people out there who game the system and have figured out near optimal values. The stats I remember seeing were more like no more than 25% of your credit line, and no more than 50% of the credit line on a given credit card. Don't quote me on those figures -- do your own research, but 60% sounds quite high. (Too high and you HURT your score.)
As for carrying a balance, that's completely bogus as long as the debt shows up on a statement. Look at an actual credit report -- all it shows are statement balances and payments. Carry over from month to month is NOT reported to credit agencies, so I don't know why people here are saying you should carry a balance.
It is critical that you do wait for the debt to show up on a statement, though. But you can then pay it off in full.
This loan officer is just trying to make a profit for the bank.
If you're really eager to pay interest to build up your score faster, do it sensibly and take out a small installment loan at a lower rate of interest than a credit card, and make regular payments for a while. Regular payments on an installment plan are much better to show your ability to handle a car loan, so you may qualify for lower rates.
But you can also just keep paying the credit cards in full every month... the score will inch upward over time, and once you take out the first car loan and make regular payments for a year or two, the score will go through the roof. If it were me, I'd skip the fancy expensive car for the first loan, and take out a more modest loan for a cheaper car... then in a couple years, the credit score will be high enough to get the best rates for a better car. You'll save a LOT of money in interest in the long run.
By paying off a credit card every month I am not paying any fee to use my money. In this case the seller is paying the fee and I collect on the benefits. On one card I earn cash back and on the other I earn airline miles which I have used to fly all over the country with very little out of pocket for the tickets (mostly various airline fees and taxes). I don't pay one cent for the use of my credit card. I don't pay interest or fees. In my case, the sellers are paying the credit card fees, not me. I'm basically getting all of the benefits at no cost to me being paid by the companies I purchase from.
The scam is when you end up paying fees to use a credit card or when you don't pay it off and pay obscene interest rates. I could see someone doing that on a rare occasion like an emergency, but it should be paid off as soon as possible. Carrying debt for the sake of carrying debt on a credit card is stupid. I have never done this and always had a very high credit score.
All of my regular banking is through my credit union where I do not pay any fees to use my money. I don't pay ATM fees at any other credit union (and they'll reimburse me for any). The more I hear about banking through the big banks the more disgusted I am.
This post is encrypted twice with ROT-13. Documenting or attempting to crack this encryption is illegal.
I once went to a US hospital, I asked how much would it cost, they wouldn't tell me. I asked will it in the range of $100, or $1000, or $10,000 still wouldn't tell me.
How is any sane person meant to go into a contract without actually knowing even an approximate price.
THIS. With all the complaints about health care costs and clarity about insurance plans, the most fair and straightforward thing they could do is force doctors to give an estimate, like you'd get from any mechanic or painter or tradesman. Obviously this wouldn't quite be possible for complex procedures where quick decisions to do additional things are needed. But a general estimate or range, or maybe a list of "potentially necessary add-ons during complications" would make things so much clearer.
But that kind of reform would never pass, and not just because of the complexity -- doing this would reveal the true cost of care, it would show the gross disparities among charges at different hospitals, and it would make clear that all the "discounts" granted large insurers is just some weird kind of game where hospitals nominally charge often twice or three times as much as they actually expect to get paid, and the amounts are "adjusted" down by the insurance companies.
Healthcare costs are spiralling out of control in the US partly because we have a system where the true cost is hardly ever seen or paid by anyone, making it impossible for consumers to make choices or comparison shop in ways that could actually improve care and make the whole system more efficient.
+1 Debit card is good for the bank...not YOU.
Now I should note everything I'm going to say here applies to FICO credit score. Banks are certainly welcome to delve deeper and look at individual account performance and make a determination that way. So maybe, and there's no way to know this, the bank would evaluate that pattern more favourably when looking at the account and considering an upgrade to an unsecured account.
However for credit score what matters is (in order of importance):
--Payment history. Paying as agreed (meaning not more than 30 days late) is the biggest thing. Having no delinquencies, collections, defaults, etc is the prime thing. A long history of "pays as agreed" is what matters most.
--Debt burden, meaning how much you owe. For revolving accounts that is the amount of credit available vs the amount used. So having a number of high limit unused credit cards helps your score. For installment/mortgage accounts it is more about how much has been payed off.
--Length of credit history. The longer you've had a credit history, the better it can be. Also the longer you have specific accounts, the more they help.
--Types of credit. The more kinds of credit you've had, the better. This means revolving (like credit cards), installment (like a car loan), and mortgage. If you've multiple categories, that helps more than just having one.
--Credit inquiries. Each time you seek credit, it hurts your score a little for a short while. It isn't much and it doesn't last long, but is has an effect.
That's it. That's how it is calculated. Of those, payment history and debt burden are by FAR the biggest part. So if you have accounts that show you always pay as agreed, and you don't owe much, you'll have good credit.
As an example: I have a mortgage on my primary house, also a paid off mortgage on file since I refinanced (which is technically a new loan so the old one shows as paid off). I have a bunch of credit cards, probably $40,000 in credit, most of which don't get used, I got them because they offered a bribe and then never made use of them again. I have a primary card that I use for pretty much all purchases, and pay off in full each month. My credit score was 820, last time I checked.
The reasons are I have a perfect, lengthy, payment record, two kinds of credit, and I owe very little in relation to my available borrowing power. Hence, good score.
Also when I did a secured card, which admittedly was like 2 decades ago, I paid it off in full every month, and after the prescribed period, 6 months I think, they gave me an unsecured card no issue.
Also with regards to the 3% charge rate, that is something that likely wouldn't go away, even if everyone went cash. Thing is, cash takes a lot of work to manage. You have to count it (*and account for it) secure it, get it to the bank, etc. If you look at a cash heavy place like a Las Vegas casino you can see the large amount of infrastructure they have in dealing with that. It isn't free. Turns out 3% isn't such a bad charge for not having to deal with that.
My parents ran a small business and they really didn't care for cash transactions. They took it, of course, and it was maybe 10% of their business. However despite not having 3% (or I think like 2.7% with their processor) shaved off the top, they prefered less cash because of the extra work. If they had a cash heavy day it meant having to cycle money out of the register in to the safe, potentially having to go to the bank to get more smaller bills/coins, and having to make bank runs more often per week. All the time spent doing that was time not spent doing something else for the business.
Cash costs money too, which is why most places don't really mind the credit surcharge. Cash might not have a direct surcharge, but there's a cost to dealing with it and the more you deal with it, the more it costs, just like the credit surcharge.
Also, in the rare occasion you do find a business that'll give you a discount for cash (contractors are often like this) you always have the option of using it. It isn't like Visa pays for goons to follow you around and force you to use your card.
Early in my legal career, I got a job with a law firm that did collections. There are a few good liar stories, like the contractor with "no money" but a Rolex and top shelf car...his wife owned a nail salon..cash business...and she owned everything. I also learned a lot of folks WILL buy stuff with no intent to pay for it. I also learned what "Judgement Proof" meant. (no assets, so they don't care) Reverse directories and skip tracing, prior to google-stalking, were an art form, one I learned well-that part helped me later in my career many times. Most seriously broke people have medical bills, not a desire for widescreen TV sets. Most of them worked, saved, and were basically normal before they got snowed with six figure invoices. Unlike the scammers, they had stories that rang true. The staff HATED when the boss would buy old credit card debit, because it was always bitch collection and always stale. He'd pay 10 cents on the dollar, so if we got a third of it, he still made out. We just got extra abuse, and he was extra interested to make sure we worked the "old cards". One day, my wife said "we can pay the rent on my income...you'll find another job-just quit-you are miserable" . I can negotiate. I can face down tough adversaries, Judges, and run a business. I just wasn't cut out for debt collection.
Even worse, there are sometimes even deceptive statements made about how much you will have to pay, and business arrangements you enter into without even knowing that the other party exists, much less that you're getting their services.
I didn't see a doctor for ten years because I couldn't afford insurance, and when I finally got covered through a decent job and went to get my first general checkup in my adult life, there was a big sign up front saying "ALL CO-PAYS DUE AT TIME OF VISIT". I figured that meant what it said: anything I owed, that was not getting billed to my insurance, was going to be billed to me before I left. When they let me walk out without paying anything, I figured that meant I must not have had a co-pay, which made sense to me as it was just a general physical exam, and a blood draw for some basic general-health lab tests (cholesterol, blood sugar, STDs, etc).
Then I got a bill in the mail a month later. Called and complained, why am I getting billed, didn't my insurance cover this, and THEN they tell me that that bill is for the remainder that's left after what my insurance paid (IOW my copay). I argued about the sign saying all co-pays were due at time of visit and they said... I don't even remember what now, exactly, but something to the extent that that's no excuse and I have to pay the bill. Not knowing what else to do, I did.
A month later I got a different bill for the blood tests, from a different company. I called and complained that I already got a bill for that visit and paid it and even that was unexpected and what the hell is with two different companies trying to collect for the same fucking service. They explained that they are the lab that my doctor sent the blood off to for the tests, and they they bill separately, and that paying my doctor for their service doesn't get me off the hook for the lab service. I had no knowledge that I was even buying services from this lab company: the only entity I interfaced with was my doctor, they hired the fucking lab, let them pay the lab and roll the cost into their bill, I figured. But no, and lab insisted I owed them money, and not knowing what to do, I paid up.
A year later, my second doctor's visit in my adult life, different doctor in a different town as I had since moved. They at least had the decency to say up front how their billing works (without me even asking), and that they will send me a bill for the copay after they process it through my insurance. And they don't do in-house blood draws and send out to a lab, they send you to the lab of your choice with orders for what tests to run. So that's better, much more clear. But the lab itself also has a "ALL CO-PAYS DUE AT TIME OF SERVICES" sign... and this time, they actually billed me at time of services! Awesome. So far, I was liking the medical establishments in this new town a lot better.
Until a month or two later I got a bill from the lab. When I called to complain that I already paid them at the time of services as their sign said, they told me then that that was only an estimated copay, and that after they put the bill through insurance, there was still a balance remaining on my copay, which is what that bill was for. Again, no idea on what grounds to dispute it, so I paid up... but ugh, what the hell
For emergency services where the patient may not have the time or awareness to evaluate the costs and benefits, I can understand you just do the service and bill later. But for a motherfucking general checkup and routine bloodwork? Jesus fucking christ, how can you not just say what it will cost up front and bill before I accept your services?
It's only one step removed from the homeless guy who washes your windows without your consent and then demands you owe him money. "Hey man you need some medical services?" "Yeah uh I guess how much?" "Can't tell you yet now turn your head and cough." "Uh... [cough]" "Aight you cool man, that'll be $100." "WTF no you didn't say it would be that much" "Too late you got the work now you pay the bill man... don't make me go get my collections posse to shake down yo ass, pay up sucka."
-Forrest Cameranesi, Geek of all Trades
"I am Sam. Sam I am. I do not like trolls, flames, or spam."
So what's new?
If you don't need credit, they'll give it to you. If you do, they won't. It's the general rule of banking.
How else can you explain that NO credit history is seen as worse than a mediocre one? For years, banks ignored me precisely because I'd never taken out a loan, credit card, etc. It was only once I'd got one that they desperately tried to push more loans down my throat. Up until then, apparently, I'd been too much of an unknown to risk it.
Credit scoring, the entire premise, is flawed. It's based on the reputation of your previous credit, and bears little resemblance to reality - as you point out. And try taking out a credit card and then RELIGIOUSLY paying back the full amount every month for many years. They hate you for it. Your credit score is still basically zero.
Credit score is not a reputation or history-based score. It's purely arbitrary. There's even "traps" like "use this high-interest credit card that we will give to people with no credit history just so you can 'improve' your score". WTF?
Hence why, as much as humanly possible, I don't use credit. Pretty much, for the last five years, I have no credit "history" as such (no credit cards, no loans, no judgements etc.), earn twice what I used to, and have never had anything "bad" on my history.
Was still refused for a joint mortgage with my girlfriend, though. Weird, because I'd had a mortgage previously for 3/4's of the same amount, earning half as much, self-employed, never missed a payment, sold the house for profit and paid off the full loan + interest early.
Ironically, my girlfriend (who's Italian, hadn't worked in the UK, had never owned a house, was refused a credit card for lack of history, and earns less than me) was approved for the entire mortgage on her own, so I just pay her half the mortgage and she's the one on their records. Oh, they offered to "put me on the paperwork" in a couple of years. This is despite the fact that in the UK, credit records (apart from bankruptcies and county-court judgements) are supposed to expire after 4 years.
Hell, they will CHARGE YOU to view your credit history, and in the UK you have to get your history from several large credit-history suppliers in order to make sure you have the full picture - some banks use one supplier, some use another, and their information can differ even though they are supposed to share it.
It's a scam. It's got nothing to do with risk, it's everything to do with maximum profit - and that means that you get a better "score" if you get into debt but don't quite go bankrupt.
I have only questions :
Why do you Americans put up with this awful service? Why is it legal for medical providers to behave in this way? Who is looking after the interests of the consumer to ensure they are not ripped off? Who is regulating the market so that it remains healthy allowing proper price discovery instead of the outright fraudulent practices that you have described? What do you pay your taxes for?
This puts America in an entirely new light for me. I am genuinely disgusted.
The debt discussion quickly moved to a health insurance discussion, as that is clearly one of the major contributors of this issue.
Slashdot has always been a mostly US centric site, but also has a significant world wide group.
As a European reading this discussion, but i recon it is so for Canadians and some larger parts of Asia as well: I'm laughing my ass off!
Oh man, you guys have seriously fu****ed up your system.
All this spastic anti-socialism, american dream, Obamacare and your corporate controlled democracy have made you end up with this monster.
Believe me, our systems are also far from perfect, but no where near the level of idiocy described here.
for me, 500 $ max own risk, rest 100% insured. no limit. 98% of the population is insured. regardless of income, age or job. I worry over other stuff. Not my health bill.
Why are other peoples sig's always more witty ???
Example:
I had a bone-marrow transplant in late 2012.
Over the next year, the Hospital and Insurance companies went round and round, churning out bills and checks.
In one case, the insurance company needed some information from the hospital to process the claim. SNAFU at the hospital left the insurance company without the info for about six months.
Soooo, the hospital sent the bill to a collection agency, which started sending me letters demanding payment. I was, therefore, among the 35%.
The next month, the hospital sent the info to the insurance company, the insurance company cut a check, and the collections agency sent me a "never mind" letter.
So, I never really had any overdue debt, but I would have counted under the methodology of this article as part of the 35%.
Which leads me to wonder what fraction of the 35% might have had debts referred mistakenly to collection agencies....
"I do not agree with what you say, but I will defend to the death your right to say it"
I skimmed a lot of comments and didn't see one directly addressing the question posed in the summary.
Basically, 35% of Americans have debts in collection status because it's easy to have an account go to collections and then linger there forever. You can imagine people's "debt responsiveness" as being exponentially bound to the time since the last payment. A debt that recently had a payment made is almost certain to have its next payment made. A debt that's a few months late has a decent chance of getting a payment made soon. A debt that is 6 months (or more) late has a very low chance of ever being paid again. This is why debt collectors buy/pursue old debts. The original creditor will likely accept pennies on the dollar just to get something out of it, while the collector wants to obtain the whole amount. If they can even get half, they come out way ahead. It's a profitable business.
I used to work in this industry (wrote software) so I could tell you some things about it.
Check out my world simulator thingy.