A one-third decline in collections items on consumer credit reports indicates lessening financial distress on households, but inaccuracy of medical debt on credit reports continues to be a drag on those same families, according to a report issued Tuesday by the federal consumer financial protection agency.
The report issued by the Consumer Financial Protection Bureau (CFPB) indicates that the total number of collections “tradelines” on credit reports declined by 33%, from 261 million tradelines in 2018 to 175 million tradelines in 2022.
However, the bureau said its report also included additional analysis examining factors that increase the likelihood of inaccurate medical collections reporting and may contribute to the decline in medical collections tradelines.
“Tradelines” is a collections industry term for accounts included on consumer credit reports. Individual accounts, such as those for a credit card or car loan, appear on the report as a tradeline and are reported by debt collectors to major credit bureaus. The bureau said tradelines reported by debt collectors rarely report positive information like on-time payments. The bureau said that results in reporting of collections tradelines “being almost entirely harmful to consumers.”
“Collections tradelines are visible to potential lenders, employers, landlords, and others who run credit inquiries or background checks,” the bureau stated in a release. “Collections tradelines can limit people’s access to jobs and housing, as well as decrease credit scores and increase the cost of credit. Given the potential damaging impacts of collections tradelines, reporting of inaccurate data is especially harmful.”
The bureau said its report also found that the share of consumers with a collection tradeline on their credit report decreased by 20% in the same four-year period. In a statement, CFPB Director Rohit Chopra asserted that the declines in tradelines “provides yet another indicator that, due to a strong labor market and emergency programs during the pandemic, household financial distress reduced over the last two years.”
The report is based on the bureau’s Consumer Credit Panel, which the agency described as a nationally representative sample of approximately 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies.
The bureau said key points about its report included:
- The decline in collections tradelines was driven by fewer reports by contingency-fee-based debt collectors, who primarily collect on medical bills.
- Concerns about data integrity and the associated costs that would come with furnishing disputed information may explain some of the decrease in collections tradelines on credit reports.
- Medical collections tradelines still constitute a majority of all collections on consumer credit reports.
“Despite the decline in collections reporting, medical collections tradelines still represent 57% of all collections items on credit reports,” the bureau stated. “Upcoming changes to medical collections reporting, as previously announced by the nationwide consumer reporting companies, will remove small dollar (less than $500) and paid medical collection tradelines from consumer credit reports. While this will reduce the total number of medical collections tradelines, an estimated half of all consumers with medical collections tradelines will still have them on their credit reports, with the larger collection amounts (representing a majority of the outstanding dollar amount of medical collections) remaining on credit reports.”
The CFPB also released today additional analysis examining factors that increase the likelihood of inaccurate medical collections reporting and may contribute to the decline in medical collections tradelines.
CFPB Finds One-Third Decline in Collections Items on Consumer Credit Reports