Down Debt

Medical debt will be surgically removed from your credit score

Your credit score may soon have a healthier glow.

On Wednesday, VantageScore, a Big Three credit scoring provider, said it would stop factoring medical debt into its scores.

Road to financial well-being

Medical debt has reached sickening levels. A survey released earlier this year by the Kaiser Family Foundation found that as many as 50 million American adults, or about one in five, pay medical bills for themselves or a family member. According to the survey, one in eight of them owe at least $10,000 in medical debt.

It’s also the most common type of consumer debt – last year, 58% of debt recorded in collections was for medical bills, according to the Consumer Financial Protection Bureau (CFPB). VantageScore’s reason for excluding them is simple: CEO Silvio Tavares said The Wall Street Journal internal company calculations indicating that medical debt is not a reliable indicator of the likelihood that someone will repay other debts. Tavares said millions of people could see their credit scores increase by up to 20 points with the new methodology, but his company’s owners still disagree:

  • VantageScore is jointly owned by the three major credit bureaus, Equifax, Experian and TransUnion, which have records on 200 million Americans. They have slowly reduced the impact of medical debt, but not removed it – recent changes include removing settled medical debt from credit reports, adding a one-year grace period before adding new medical debts to records and eliminating unpaid medical bills. debts of $500 or less.
  • The CFPB, however, says these actions by the Big Three are insufficient and the majority of medical recoveries will likely remain on credit reports. Before the changes, the CFPB said there were about $88 billion in medical bills out of 43 million credit reports.

Additional Credit: Earlier this year, Equifax sent inaccurate credit reports on millions of Americans applying for car loans, credit cards and mortgages. Maxine Waters, chair of the House Financial Services Committee, said the CFPB should freeze Equifax’s ability to sell credit ratings to lenders until it can prove its internal controls are satisfactory. She owes a debt of gratitude.