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

On Behalf of | May 28, 2014 | Medical Debt |

Welcome back. If you missed part one of this two-part post, you can find it here.

After examining five million credit records, the Consumer Financial Protection Bureau (CFPB) concluded in a recent report that the creditworthiness for someone with unpaid medical debt in collections is underestimated by about 10 points.

The CFPB came to this conclusion after studying the credit records from September 2011 and September 2013 to determine how well a person’s credit score actually predicted their likelihood of paying back lenders. 

The CFPB found that people who had medical debt sent to collections typically paid back lenders close to others with credit scores about 10 points higher than their own. Additionally, the CFPB found that the scores of people who had repaid medical debt that had gone to collections may have been underestimated by up to 22 points.

One reason medical debt appears to make less of an impact on a person’s future creditworthiness could be that the debt is often the result of billing issues with hospitals, practitioners or insurers, the CFPB report indicated.

And while 10 to 22 points might not seem like a very big difference in numbers that range in the hundreds, the discrepancy is enough to cause a person to not qualify for loans and credit cards.

That’s why the CFPB director suggested that “scores could be more predictive if they treat medical debt and non-medical debt differently;” however, he did not go so far as to suggest that new rules governing the computer scoring models are needed.

Even so, the findings could help bring attention to the problem of medical debt, which is something that countless people in Wisconsin and the rest of the country are currently struggling with. Some say the Medical Debt Responsibility Act could also receive a boost as a result.

The measure would require that any medical debt that is settled or paid has to be taken off of a consumer’s credit report within 45 days.

Debt settlement is often possible for people with hefty medical bills. However, it’s not always an easy process, especially when debt collectors are involved. That’s why many Wisconsin residents turn to a skilled bankruptcy lawyer for assistance.

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


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