BACK

Credit Scores and Reports

Fewer consumers have debt accounts in collection, NY Fed report finds

Summary

Implementation of tighter credit reporting standards has meant a steep drop in collection demerits and an average 11-point increase in credit scores, says a New York Fed study.

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Tighter credit reporting standards for debts in collection have paid off for millions of consumers over the past year, the Federal Reserve Bank of New York said Tuesday.

The fraction of people with an account in collection on their credit report plunged below 10 percent since mid-2017, according to an analysis linked to the bank’s quarterly Household Debt and Credit report.

The change, a result of the tighter standards in the National Consumer Assistance Plan, resulted in an overall average improvement of 11 points in consumers’ credit scores from June 2017 to June 2018.

Some people benefited much more. Eighteen percent saw their credit scores go up more than 30 points.

See related: Banks tighten standards for credit card applicants, Fed survey says

Consumer debt up – including credit cards

Other results from the quarterly report found that consumer debt continued on its upward path. Total household debt was up $82 billion to $13.29 trillion in the second quarter.

“Aggregate household debt grew for the 16th consecutive quarter in the second quarter of 2018,”  Wilbert van der Klaauw, senior vice president at the New York Fed, said in a news release. Overall delinquency rates were stable, he said, while new student loan delinquencies slowed.

As for credit cards, the report found:

  • Total balances were up 4.8 percent over the year to $829 billion.
  • The number of accounts was 469.6 million, up from 459.3 million.
  • The average balance per account was $1,765, up from $1,707.
  • Delinquencies of 90 days or more affected 7.88 percent of balances, up from 7.38 percent.

Improvement in credit scores is mixed

“Those who saw the largest boost to their scores were generally those with initially very low credit scores,” said a blog written by four New York Fed economists, Andrew Haughwout, Donghoon Lee, Joelle Scally and Wilbert van der Klaauw.

Another 20 percent saw rheir credit scores go down, probably because of other changes on their report. Few people with high scores saw an improvement.

The assistance plan, which was the result of a 2015 settlement between states and the big three credit bureaus, tightened reporting of medical debts, court filings, non-contract debts such as traffic tickets and other measures.

Studies had anticipated improvement in some people’s credit scores. The New York Fed analysis, which looks at a sample of Equifax credit reports, measured the impact of the changes using the three-digit Equifax Risk Score.

Few people with scores below 620 saw enough of an improvement to move out of the deep subprime tier.

“Given that their score remains deeply subprime even after the boost, it’s likely that the collections accounts were not the only thing holding down their score,” the economists wrote.

What’s up next?

In Credit Scores and Reports

South Dakota, North Carolina lead nation in new card accounts

New data from Experian shows card balances grew 6.6 percent year-over-year in the second quarter, and new credit card accounts grew even faster

Published: August 14, 2018

See more stories
Credit Card Rate Report Updated: June 19th, 2019
Business
15.61%
Airline
17.54%
Cash Back
17.68%
Reward
17.57%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.