Credit report

Overdue debt is a common surprise on a credit report

Even if you’re vigilant about paying your bills, overdue debt could lower your credit score.

More than a third of consumers — 35.1%, to be exact — have collection debt on their credit report, according to a new report from the Urban Institute. The report assessed 2013 data from credit bureau TransUnion.

“It is a surprising finding that debt in collections is so widespread,” said Caroline Ratcliffe, author of the report. “It crosses all communities, and it’s particularly high in the South.”

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Concentrations of overdue debt tend to be higher in regions that have been hit hard by the financial crisis, Ratcliffe said. The average amount of collections is $5,178 and the median is $1,350. (See our slideshow for states with the highest percentage of residents with debt in collection.)

But for some people, the fact that a debt collector is looking for them comes as a surprise. About 10% of consumers in the dataset had a collection for amounts less than $125. These were things like unpaid parking tickets, overdue gym membership fees, and utility bills, among other more insignificant debts. Some owed less than $25.

“Even if you think you’re very responsible with your bills, it’s not at all difficult to end up with a collection on your report,” said Gerri Detweiler, director of consumer education for Credit.com.

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Medical debts are a common surprise collection, with billing system issues like a bill not being submitted to the correct insurance or a bill being disputed by you, the provider or insurer, she said. declared.

There is also what is called the last bills. “That’s when you move out and there’s a final utility or phone bill, but you don’t get it because it doesn’t come to your new address,” Detweiler said.

Expected or not, a collection debt can put a dent in your credit score. Depending on other aspects of your score, such a black mark could knock off 50 points or more, Detweiler said. Consumers with better scores otherwise, or a newer collection account, would see greater damage.

Spotting an overdue debt is easy. Federal law gives consumers the right to a free credit report listing open and recent accounts from each of the three major credit bureaus every 12 months. Access it at AnnualCreditReport.com.

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Debt management in collections can be a bit more difficult. If it’s an outright error like “I paid that bill a long time ago!” you will need to dispute the error with the credit bureau. Paying the debt doesn’t necessarily remove a collection from your report, and such black marks can remain on your report for up to seven years, Ratcliffe said. Some credit score calculations also do not weigh a paid collection account and an overdue account differently.

“The time to negotiate is before you pay,” Detweiler said. Ask if the collection agency will arrange to remove the debt once paid – many will, especially if it’s an unexpected debt that you weren’t aware of.

—By CNBC’s Kelli B. Grant