Some Good News For Americans With Medical Debt

By Carol Church, Writer, Family Album

Reviewed by Martie Gillen, PhD, Department of Family, Youth, and Community Sciences, University of Florida

Unpaid medical bills, whether they result from consumer confusion or inability to pay, seriously affect the financial well-being of millions of Americans. According to one study, medical problems contribute to at least half of all U. S. bankruptcies filed. Some cite even higher percentages.

Other consumers don’t reach the point of bankruptcy, but end up with lower credit scores due to late or unpaid medical bills. These reduced scores can make it hard or impossible to get loans or credit, or result in higher loan interest rates.

Medical Bills in Collection Are Common, May Not Reflect Irresponsibility

About one in 5 Americans has a record of a medical account in collections on his or her credit report. Most of these bills are not large; in fact, 75% are under $500. And here’s an important fact: according to research, having a medical bill in collections may not indicate that someone is a poor credit risk.

In fact, people with unpaid medical bills are more likely to be in good financial condition and to pay their future bills on time than people with other types of collection items on their credit reports. This can likely be traced back to the confusing and unexpected nature of medical bills. (How many times have you gotten a doctor’s bill in the mail that just didn’t seem right? Perhaps you felt you’d already paid it, or that the insurance company should have covered it?)

New FICO Model Helps Those with Medical Debt

Now there’s some good news for people with past medical bills that went to collections, and those who might end up with unpaid medical bills in the future (a group that could include almost anyone!) FICO, the company that issues credit scores, has decided to come up with a new credit scoring model that takes these concerns into account. Under the new system, called FICO 9, consumers whose only problem bills are medical bills will be penalized less harshly on their credit scores. On average, these consumers will see their scores go up by 25 points. The new scoring formula includes some other changes to help consumers as well.

However, the rollout of FICO 9 has been slow, and it’s up to lenders to decide which FICO model to use. It may take a while for you to see the changes take effect.

Checking on Your Credit

Worried you might have a medical bill on your credit report? Learn how to check and “spring clean” your credit report at Clean Up Your Credit This Spring and Keep an Eye on Your Credit File. If you want to dispute a debt collection action, visit this page at the Consumer Financial Protection Bureau.

Changes May Take Time

Be aware that even if your credit score does go up as a result of FICO 9, you probably won’t see anything change automatically as a result. Instead, your improved score will give you better opportunities when you next apply for a loan or a credit card.

Overall, though, these changes are good news for the many Americans who have faced unexpected, high, or bewildering medical bills or payments, and been financially affected. Medical problems can be difficult in so many ways; anything that makes things a bit easier on consumers is welcome.

References:

Consumer Financial Protection Bureau. (2014). Consumer credit reports: A study of medical and non-medical collections. Retrieved from http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf

FICO. (2014). FICO Score 9 Introduces Refined Analysis of Medical Collections. Retrieved from http://www.fico.com/en/newsroom/fico-score-9-introduces-refined-analysis-of-medical-collections

Himmelstein, D. U., Thorne, D. ,Warren, E., & Wollhandler, S. (2009). Medical Bankruptcy in the United States, 2007: Results of a National Study. Retrieved from http://www.pnhp.org/new_bankruptcy_study/Bankruptcy-2009.pdf

Lowry, E. (2014). FICO Score Changes Could Help Millions of Americans. http://www.dailyfinance.com/2014/08/08/fico-score-changes-could-help-millions-of-americans/

Photo Credits: Rufous52/iStock/Thinkstock

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Posted: April 3, 2015


Category: Money Matters, Work & Life
Tags: Family Resource Management, Personal And Family Finances


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