Medical Debt Credit Score Reform Hopeful

Medical debt credit score reform

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Medical Debt Credit Score Reform Hopeful

UPDATE:  New FICO 9 will not count paid medical debt in collections as a negative!  This policy will make an enormous difference in the credit scores of those with large amounts of medical debt in their credit reports.  Unpaid medical bills will be counted less while paid medical bills will be completely ignored.  A consumer with a median credit score of 711 that is weighed down by medical debt could see an increase of 25 points or more if the debts are paid.  The lender must first adopt the FICO 9 system for this to matter.  Some lenders are slow to do this.  Many have not even adopted FICO 8 yet so don’t be too confident that this will immediately apply to your new application.

An astounding percentage of negative credit report entries are caused by alleged unpaid medical bills.  Over half of the negative entries on credit reports in the country are caused by disputes over unpaid medical bills.  The American Medical Association’s own Annual Report Card found a 10 percent error rate on paid medical claims.

Many times consumers are unaware of the presence of this negative information on their credit reports until they are turned down on a 0 percent balance transfer offer or something of that nature.  Richard Cordray of the CFPB has commented that, unlike loans where the costs are known going in,  medical costs have less visibility.  Medical costs are often unknown until after treatment.

Remember when applying for a mortgage your lender will likely scrutinize your credit reports in detail. There is nothing to stop them from considering medical debt in its decision as to whether or not you can afford the mortgage regardless of what your FICO score may be.

Medical Debt Credit Score Causes

Not all or even most of the medical debt that drags down so many credit scores is the result of willful non payment.  Billing errors are common.  The medical billing system is confusing.  What is covered and what isn’t covered?  Sometimes bills arrive months later for procedures for which the insurer has declined to pay.  Many consumers are understandably bewildered.  Most consumers don’t know how to fight back.  The medical bills fall through the cracks and the result is a ruined credit score.  These types of problems frequently occur when a consumer is weakened by illness through no fault of their own and unable to cope with yet another financial problem.  Until medical debt credit score reform becomes a reality medical bills are just as damaging to credit as any other kind of negative entry.

Medical Debt Responsibility Act of 2013

Consumer Financial Protection Bureau, IRS Speak Out

The CFPB questions whether medical debt is predictive of consumer’s future likelihood of paying.  Predictability of default is after all the whole reason for the existence of credit scoring in the first place.  To my astonishment support for reform is coming from, of all places the Internal Revenue Service.  In exchange for their tax exempt status the IRS would forbid hospitals from taking “extraordinary collection actions.”  Reporting debt to the Credit Reporting Agencies would be among these extraordinary actions.  Hospitals would first have to certify whether or not a patient qualifies for charity care.

don’t let good health insurance give you false security while you wait for medical debt credit score reform

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After practicing law for 37 years Edward F. St. Onge, Sr. now devotes all his time to helping consumers achieve a high credit score with amazing speed. Learn the counter-intuitive secrets to credit scoring through his down to earth instructions backed by extensive knowledge of the laws and trends. All of the latest tricks and techniques that they don't want you to know now at your disposal. At last a level playing field for the consumer!

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