According to many financial experts, one of the things that consumers should do every year is secure a free copy of their credit report from one of the three major credit bureaus. This simple step, they argue, can enable them to ensure that there are no errors present and provide them with a snapshot of their financial health as it relates to available credit.
Over the last few years, however, the idea of performing this simple yet otherwise vital task has become a scary proposition to many Americans thanks in large part to skyrocketing medical costs. Here, the problem is that people — even those with health insurance — simply can’t pay their medical bills, and this failure can cause their credit score to take a major hit.
If you don’t believe that medical debt is a major problem, consider that statistics show that it is now the number one cause of most bankruptcy filings here in the U.S., and that as many as 28 million Americans have emptied their savings over the last two years to cover medical expenses.
The good news is that help is on the horizon, at least so far as credit scores are concerned.
That’s because the Fair Isaac Corporation — or FICO — which compiles the most ubiquitous credit score in the U.S. announced earlier this month that it would be introducing major changes regarding medical debt.
Here, FICO will distinguish between medical and non-medical debt, with unpaid medical debt being given less weight in the calculation of credit scores and past paid medical debts being discounted altogether.
“Many consumers have medical debt, and we’ve found that this does not necessarily indicate an unlikeliness to repay other debts,” said FICO’s director of public relations. “Giving less weight to unpaid medical bills in collection … is a way to possibly increase the chances of someone who is otherwise a good credit risk getting a loan.”
It is estimated that FICO’s re-calculation efforts will raise credit scores by an average of 25 points for those with unpaid medical debt but otherwise solid repayment histories.
While this is certainly very good news, it is important for those people whose medical debt has become entirely unmanageable despite their best efforts to remember that they do have options for securing a fresh start.
Source: Forbes, “Medical debts will soon weigh less on your credit score, but they’re still a problem,” Christina LaMontagne, Aug. 26, 2014