There’s been a plunge in the number of collections accounts after changes imposed on credit-reporting agencies by state regulators, according to a new study released Tuesday.
The 2015 settlement between 31 state attorneys general and Experian EXPN, -0.74% , Equifax EFX, -0.78% and TransUnion TRU, -1.22% created what’s called the National Consumer Assistance Plan, which was designed to limit credit reporting errors that impair scores. That went into effect in the second half of 2017. Among other things, credit-reporting agencies have to more frequently and accurately report collections as well as remove some medical bills.
In a new report, the New York Fed found immediate results, as most analysts anticipated ahead of the change. Between June 2017 and June 2018, the number of individuals with a collections account on their credit report fell from 33 million down to 25 million. The number of collections accounts reported also dropped substantially, from more than 66 million collections accounts to about 47 million. The aggregate balances reported on collections accounts also declined, by about $11 billion.
That said, credit scores weren’t noticeably better afterwards. For one, the population that was impacted by these changes had lower credit scores to begin with. A third had some kind of delinquency in their credit accounts, compared to only 8% of everyone else.
Most didn’t see a big boost — the average gain was 11 points — but for 18%, there were gains of at least 30 points. Those big gainers typically still had bad credit afterwards. The New York Fed said those who saw an increase of 40 or more points in their score began with a 529 on average, and ended with an average of 588.
“These borrowers will certainly benefit in the long run from the cleanup of their credit reports, since higher scores are associated with better access to credit, to the job market, and even to the rental housing market. But the immediate impact of the removal of collections will be muted if the beneficiary’s credit record continues to be tarnished with other negative information,” the New York Fed found.