Nearly one out of four U.S. consumers, who are delinquent on telecom services, such landline or cell phone, cable, and internet, have discovered the collection activity listed on their credit reports.
While the telecom collections item on a consumer’s credit record will not help their personal credit score, the change in score before and after the item appears on the credit record is often small and therefore unlikely to affect creditors’ decisions for many consumers.
It should be noted most telecommunications providers do not report to credit reporting agencies unless an account is in collections.
The median telecom collection balance is $408, and 17% of telecom collection balances exceed $1,000. The larger balances likely include not only unpaid service bills but also the value of financed devices (such as phones or tablets), unreturned rented devices (such as cable or satellite boxes or modems), and possibly early termination fees (ETF).
According to the Bureau of Consumer Financial Protection (Bureau) latest quarterly consumer credit trends report, telecom providers often hire collection agencies or sell telecom debt to debt buyers. Collection agencies are typically contracted to collect a telecom debt for several months. After the collection contract ends, the debt is returned to the telecom’s provider and the collection item is removed from the credit record. The debt may be sold or sent again to a collector and reported as a new item in the credit file.
The Bureau found 37% of consumers who reported having been contacted about a debt in collection in the prior year were contacted about a telecommunications debt. Only credit card and medical debts were more commonly cited.
Having a telecom collection reported might be expected to reduce a consumer’s score in most cases, but the change in score is often small. Almost 20% of consumers experience a score decline of 10 points or less after a telecom collection appears on their credit report, for example, and a smaller share (about 13%) experience no change or a score increase of less than 10 points.
The effect of a telecom collection being reported could differ across consumers according to the other information in the credit record. A telecom collection may have little effect for a consumer with a subprime score, for example, since it accords with the information and history captured in the credit score that the consumer has a relatively weak repayment history. In contrast, a new telecom collection may be more informative about the current financial situation of a consumer with a higher credit score.
The data used in the report are from the Bureau’s Consumer Credit Panel, a longitudinal, nationally representative sample of five million de-identified credit records maintained by one of the three nationwide consumer reporting companies.