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.
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.
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