Credit Scores Unfairly Impacted by Medical Debt - Legal News


ADVERTISING DISCLOSURE: is an independent, advertising-supported web site. receives compensation from most 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. 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

Credit Scores Unfairly Impacted by Medical Debt
The content is accurate at the time of publication and is subject to change.

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.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:

Related News:

Feds Call for Free Credit Scores
Feds Call for Free Credit Scores

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
Texas is Tops for Consumer Debt in Collection

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
43 Million Americans Have Medical Debt on Credit Reports

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.
Introducing the New Citi Rewards+ Card - the only credit card that automatically rounds up to the nearest 10 points on every purchase - with no cap
For Excellent, Good Credit
Enjoy 70,000 bonus miles after spending $5,000 on purchases in the first 90 days
For Good/Excellent Credit
See Rates & Fees
Perfect credit not required for approval; we may approve you when others won’t
For Fair/Bad Credit
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!