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Should credit scores treat medical debt differently? (1 of 2)

| May 27, 2014 | Medical Debt |

As any Wisconsin resident with a bad credit score knows, those three little numbers can have a major impact on your life. Potential lenders look at a person’s credit rating when determining whether or not to provide a loan or credit card. Having a poor score, therefore, can close a lot of doors.

A credit score is determined by computer formulas that are intended to predict a person’s likelihood of paying back lenders based on his or her credit history. This “creditworthiness” is translated into a three-digit number, and the larger the number, the better the score.

Negative credit events, such as having a bill go to collections, filing for bankruptcy or going through foreclosure all bring down a person’s credit score, while positive credit history such as opening a credit card and making timely, consistent payments, bring up a credit score.

Additionally, all of these positive and negative credit events affect the credit score to different degrees. However, when it comes to a bill being sent to collections, the computer scoring models used to calculate credit scores do not differentiate between types of debt, such as a hospital bill, credit card debt or unpaid phone bills.

Recently, it was determined by a government agency that the scoring might be coming down too hard on individuals who have had unpaid medical bills go to collections. This is an important finding considering that medical bills are now responsible for more than half of the collection “dings” found on credit reports, according to the Federal Reserve Board.

Please check back tomorrow for more on this important finding.

Source: CNBC.com, “Credit alert! Unpaid medical bills unfairly hurt scores,” Herb Weisbaum, May 21, 2014

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