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FICO announces new scoring system for medical debt

Imagine that you are injured in an accident and require medical treatment. But due to a misunderstanding regarding your health insurance, you end up having to pay more out of pocket than you had anticipated. You now find yourself in a situation many Americans have faced at least once in their life.

For quite some time now, medical debt has been weighted the same on credit scores as any other form of debt. This meant that even if you paid off the debt immediately after it went into collections, it would still take away the same points from your credit score as would credit card debt or other unpaid loans.

But this has long been argued as being unfair to consumers who often do not have a choice when it comes to medical treatment and the bills that come with it. It's likely because of this that FICO, one of several credit score providers here in the United States, recently adopted a new rule that would decrease the weight of overdue medical bills on a person's credit score.

FICO says that its new scoring system will help give lenders a better picture of a borrower's trustworthiness to pay back a debt and will help identify those that may be a risk to do business with. Consumers will also appreciate the change too because it will help raise their scores, which helps a lot when using lines of credit to make important purchases such as homes or vehicles.

Consumers may see changes to their scores starting as soon as the fall.

Source: The Claims Journal, "FICO to Downplay Medical Debt in Credit Scores," Amrutha Gayathri and Emily Stephenson, Aug. 14, 2014

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