Victory for Consumers! FICO Agrees to Ignore Paid Medical Debt in New Credit Score
By Consumers Union on Tuesday, August 12th, 2014
Finally, good news for consumers who have seen their credit scores plummet after an unexpected health crisis!
The Fair Isaac Company (FICO) will not use any paid or settled debt in collections when calculating its new credit score model. And it will weigh unpaid medical debt in collections less in these scores than other types of debt that have gone to a collection agency.
A consumer with a great credit record except for a paid or settled medical bill in collections would see a dramatic score increase under this new model. John Ulzheimer of Credit Sesame tells the New York Times, “. . . [Y]ou could expect to see your score go through the roof[.]”
However, some lenders may continue to use the previous FICO scoring model, which means that not all consumers will benefit from this change. Under the previous models, a bill with a collections agency could cause a consumer’s score to decrease by 100 points. An estimated 64 million Americans have medical debt and over three million Americans had a paid or settled medical bill in collections in 2012.
FICO’s news comes on the heels of a new report from the Urban Institute showing that about one out of every three Americans has a bill that has gone into collections. In May, the Consumer Financial Protection Bureau (CFPB) found that by considering paid medical debt with collection agencies, some scoring models misrepresented consumers’ creditworthiness by a maximum of 22 points.
We’re thrilled by this development, as we’ve been pushing the credit reporting industry for years to treat fairly consumers who have paid or settled medical debt. In April, we recommended that all paid or settled medical debt be immediately deleted from credit reports. And, we’re the lead advocate group fighting for passage of the Medical Debt Responsibility Act, currently pending in Congress, that would require credit bureaus to dismiss this type of debt from credit reports in 45 days.
This legislation is necessary because it protects everyone with paid or settled medical debt from being treated unfairly by potential creditors, insurers, and employers. Credit reports and scores can determine whether you’ll get a mortgage, car, or private student loan and how much you’ll pay in interest. Insurance companies in many states look at credit scores when calculating auto and homeowners’ insurance rates, and almost half of employers use credit reports in some or all hiring decisions.
Please join us in backing the Medical Debt Responsibility Act. You can take action by telling your representatives in the House and Senate to pass this bill. And help us turn up the heat on Congress by sharing your medical debt story!