How Debt Collectors Furnish Data to Credit Bureaus (Part One)

According to a report by the Consumer Financial Protection Bureau (CFPB), debt collectors provide vast amounts of data to the three national credit bureaus—Experian, Equifax, and TransUnion. The bureaus then use the debt collectors’ data in calculating the credit reports (and credit scores) of 220 million consumers. And concerningly, the CFPB has identified critical issues with this data collection—points that every consumer should be aware of.

There are an estimated 7,000 debt collection agencies in the United States, with an annual industry revenue of $13.4 billion. And they’re contacting about one-third of the consumers with a credit file and at least one outstanding debt each year. But only 1,400 of these companies report the debts they hold to the credit bureaus, and there is a significant disparity in their reporting.

Ten companies are responsible for 22% of all debt-related items (known in the industry as “tradelines”) that appear on consumers’ credit reports. But it depends on the type of debt the firms pursue.

For instance, more companies report on medical debt than in other industries. The CFPB analysis found that the top ten companies that furnish medical debt only provide 18% of tradelines, so 82% come from the rest of the companies. By contrast, for debts relating to cable, cellular, and wireless bills, the top ten companies reporting on those debts make up 83% of those tradelines.

Consumers with medical debt are more likely to have multiple tradelines on their credit reports. In contrast, those with other types of debt may escape unnoticed—simply because those industry’s debt collectors are less likely to report on the debt.

This industry fragmentation means that different types of debt can result in different consumer problems. For example, medical debt is usually for smaller amounts than other categories of debt, but the vendors send medical debts to collections faster than other types of debt. Thus those with medical debts may seem like more significant credit risks because these debts are faster to show up as delinquent and have moved to collection. (These are some reasons why the credit bureaus have pledged to reduce the use of medical debt in their reports.)

In our next post, we’ll look at what happens to a negative tradeline after a consumer pays the debt collector what they owe. (Spoiler Alert: Nothing. Nothing happens.)

Click here for part 2!