Medical Debt Will Be Surgically Removed from Your Credit Score

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Your credit score may soon have a healthier glow.

On Wednesday, VantageScore, a credit score provider owned by the industry’s Big Three, said it will stop factoring medical debt into its scores.

Road to Financial Wellness

Medical debt has reached nauseating levels. A survey released earlier this year by the Kaiser Family Foundation found that a whopping 50 million American adults, or roughly one in five, are paying off medical bills for themselves or a family member. According to the survey, one in eight of them owes at least $10,000 in medical debt.

It’s also the most common kind of consumer debt – last year, 58% of debts recorded in collections were for medical bills, according to the Consumer Financial Protection Bureau (CFPB). VantageScore’s reason for excluding them is simple: CEO Silvio Tavares told The Wall Street Journal the company’s internal calculations showing medical debt is not a reliable predictor of the likelihood someone repays other debts. Tavares said millions could see a credit score increase of up to 20 points under the new methodology, but his company’s owners aren’t yet on board:

  • VantageScore is jointly held by the three major credit score bureaus, Equifax, Experian, and TransUnion, which have records on 200 million Americans. They have slowly reduced the impact of medical debt, but haven’t done away with it — recent changes include removing settled medical debt from credit reports, adding a year-long grace period before adding new medical debt to records, and eliminating unpaid medical debts of $500 or less.
  • The CFPB, however, says those moves by the Big Three are insufficient, and that the majority of medical collections will likely remain on credit reports. Before the changes, the CFPB said there was roughly $88 billion in medical bills on 43 million credit reports.

Extra Credit: Earlier this year, Equifax sent out inaccurate credit reports on millions of Americans applying for auto loans, credit cards, and mortgages. Maxine Waters, chairwoman of the House Financial Service Committee, said the CFPB should freeze Equifax’s ability to sell credit scores to lenders until it can prove its internal controls are satisfactory. She’s owed a debt of gratitude.