Credit Card News
Advertising Disclosure
Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from many credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.
Credit Card Applications » News » Legal » Credit Scores Unfairly Impacted by Medical Debt

Credit Scores Unfairly Impacted by Medical Debt

Add to Favorites:
Credit Scores Unfairly Impacted by Medical Debt
May
23

People’s credit scores may be negatively impacted by medical collections that they aren’t even aware of, according a study by the Consumer Financial Protection Bureau (CFPB).

That’s just one of the problems revealed by the study, which looked at 5 million credit reports between September 2011 and September 2013. Analysts examined credit histories and scores in relation to consumers’ actual payment patterns over the course of two years to determine whether their credit scores were reliable predictors of repayment.

Researchers found that medical debt that had gone into collections was responsible for lowering many people’s credit scores even after the debt had been paid. Most medical debt is reported to credit bureaus by third-party collection agencies, and many times consumers don’t know that the debt has been sent to collections. Collection reports remain on credit records and impact credit scores for up to seven years.

Findings indicated that, in general, having medical debt in collections did not correlate with not repaying other types of debt. Consumers who had medical debt on their credit reports paid their bills at the same rate as people whose credit scores were ten points higher. And people who had repaid medical debt that had been in collections paid back debt at a rate consistent with consumers with credit scores 16 to 22 points higher.

The study concluded that a poor credit score due to negative information from medical collections does not paint an accurate picture of consumer behavior.

No differentiation between medical and other debt

Although medical debt is different than other types of debt, credit scoring models do not differentiate between unpaid debts in collections. The result is that credit scores weighed down by medical debt are not precise indicators of whether or not someone will keep up to date on credit card payments, rent, utility or other bills.

Sometimes medical debt is sent to collections as a result of problems with insurance companies or medical provider billing processes. When that happens, it can result in an unpleasant surprise when folks check their credit reports. The CFPB said they receive many complaints from people who didn’t know they had medical debt in collections until they found it on their credit report or got a call from a collections agency.

Richard Cordray, director of the CFPB, urged credit bureaus to change their scoring methods to take into account differences between medical debt and other consumer debt. “Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer’s credit score,” he said.

Add to Favorites:

Related News:

Feds Call for Free Credit Scores

By Elizabeth Nelson, Posted: March 07, 2014

The Consumer Financial Protection Bureau (CFPB) is urging credit card issuers to make cardholders’ credit scores available for free on their monthly statements and online. Continue reading
Texas is Tops for Consumer Debt in Collection

By Elizabeth Nelson, Posted: August 22, 2014

A study by the Urban Institute of Washington, DC, showed that 35% of Americans currently have a debt in collections – and that Texas leads the pack when it comes to delinquencies. Continue reading
43 Million Americans Have Medical Debt on Credit Reports

By Elizabeth Nelson, Posted: January 05, 2015

A report by the Consumer Financial Protection Bureau (CFPB) illustrates the impact of medical debt on people’s credit ratings, and the agency’s director is calling for credit bureaus to provide them with reports to ensure the accuracy of ... Continue reading
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
Get 0% Intro APR on Balance Transfers and Purchases for 21 months. After that, the APR will be 12.24%-22.24% based upon your creditworthiness.
For Excellent/Good Credit
1% cash back on select purchases, terms apply
For Fair Credit
Guaranteed $500 Unsecured Credit Limit
For Bad Credit