Everyone wants to pay their bills on time, of course. Life, on the other hand, has other plans. Billing late is an unfortunate but common occurrence.
More than one-quarter of Credit Sesame members’ accounts are currently in collections or have been charged off. That means these customers were not just late on their payments; they were so late that the creditor had to hire a debt collector or write off the debt entirely as a loss.
The majority of delinquent accounts we see at Credit Sesame are associated with larger types of credit accounts, such as student loans, auto loans, credit cards, and so on. However, one-third of them (a large number) come from a different type of account:
- Medical devices and household utilities
What distinguishes cellular, medical, and utility debt?
Credit cards and loans, which are more traditional forms of debt, report your payment status on a monthly basis. These types of accounts help you build healthy credit as long as you pay on time and use the account responsibly.
This is not the case with cellular, medical, and utility debt. These payments are usually not recorded on your credit report unless the creditor has something negative to report:
- Chargeoffs for late payments Collections
Paying your cell phone bill, doctor’s bill, or electric bill, on the other hand, does nothing to help you build credit. Your credit score may suffer if you do not pay the bill.
If you see one of these accounts on your credit report, it’s likely that it’s hurting you.
How much damage do cellular, medical, and utility debts do to your credit?
We decided to examine a sample of 5,000 anonymous Credit Sesame members with these types of debts to see how damaging they are.
Collections of cell phones
Cell phone bills frequently exceed $100 per month. It’s no surprise that some people can’t keep up with their payments. You can reduce your cell phone bill by using a pay-as-you-go plan or a discount carrier such as Cricket or Republic Wireless.
Unfortunately, the damage has already been done for many Credit Sesame members.
The average balance on a cell phone collection account is $939.
If you believe that younger consumers are more likely to have difficulty paying for their phones, you are mistaken. The average cell phone collection balance of members in their 40s is the highest of all.
$ 1,019 on average for members in their 40s
Cell phone debts are extremely damaging to your credit. These members have an average credit score of 550, which is on the low end of bad credit.
Collection of utility bills
Unfortunately, you usually don’t have much of a say in who provides your utilities. This makes comparison shopping difficult.
Most people understand that paying utility bills is probably more important than paying cell phone bills. That could be one of the reasons why the average utility collection balance is less than half of the average cell phone bill collection balance.
A typical utility collection account balance is $414.
We also see some interesting age trends here. People under the age of 40 who have utility collection debt owe approximately $68 more than people over the age of 50 who have utility collection debt. Perhaps as we get older, we are less concerned about losing the food in the refrigerator when the power goes out.
Utility debts in collections hurt your credit score. These Credit Sesame members have a credit score of 542, which puts them squarely in the bad credit category.
Collections of Medical Items
According to a Harvard study, medical debt is one of the leading causes of bankruptcy. It’s no surprise, then, that medical debts have the highest balances of all debts that only report negative information.
The average medical collection account balance is $3,670, which is divided among three accounts.
Members of Credit Sesame in their 50s have far more debt than any other age group. Medical costs rise as we age, so it’s not surprising that the debt load of the elderly is higher.
$ 9,308 on average for members over the age of 50.
$2,958 on average for members in their twenties
Surprisingly, men with medical debt in collections have balances that are twice as high as those of women.
Men’s average: $6,364
Women’s average: $3,465
With this type of debt, the average Credit Sesame member has a credit score of 552. We’re back to talking about bad credit.
What can I do if my accounts are in collections?
It may not appear so now, but having accounts in collections is not the end of the world. With a little time and effort, you can recover.
First, start saving for a one-month emergency fund (three months if possible).
Second, if possible, pay off your debt.
Unpaid collections hurt you in the new FICO® scoring model, but paid collections do not. When you pay off the delinquent accounts, your credit score should improve.
We have an excellent guide on how to create a plan to pay off debt while also saving money.
Next, try to reach an agreement with your debt collectors. However, make sure you fully understand the terms and implications of the settled debt because the forgiven amount may be reported to the IRS as taxable income in some cases.
If all of this seems overwhelming, seek assistance. You can work one-on-one with an NFCC-certified nonprofit credit counselor to develop a viable strategy and payment plan. Credit counseling is either free or low-cost.
The counselor can also assist you in developing a Debt Management Plan. They’ll negotiate lower fees and interest rates with your creditors and devise a plan to get you debt-free in 3 to 5 years or less. You will make a single payment to the plan, and the funds will be distributed to your creditors. The service usually requires you to pay small fees to set up and maintain your account, but the plan can save you a lot of time and money, not to mention your sanity and confidence.
All you have to do now is wait after you’ve paid off or settled your debt. This negative mark will be removed from your credit report seven years after the last activity on the account. Furthermore, some creditors and collection agencies will agree to stop reporting the collections account as soon as it is paid in full. Make a mental note to check it again in the future to ensure that the account has indeed been removed from your credit report. Then you can move on with your life, credit-wise!
