A person’s FICO credit score can have a major impact on his or her life. This score tells creditors whether a person is financially responsible or not. Based on this score, people may or may not be able to get a loan to purchase a car or home or other purchase that requires a strong credit history. If they are approved for a loan, their credit score will most likely determine what interest rate they’ll be paying on that loan.
People work very hard to build their credit and then maintain a high credit rating. To achieve this, a person must pay his or her bills on time, and not have a large percentage of debt. It doesn’t take much for a person’s credit score to start slipping.
This is especially true when someone experiences a financial setback: such as high medical debt. Unpaid medical bills or bankruptcy can result in a lower FICO score. In addition, the reasons why your score lowered (unpaid bills, late payments, and bankruptcy) will stay on your credit record for years. While your credit score may eventually start rising again, creditors will still be able to see why it was lowered in the first place. This can impact your interest rates and ability to get a loan years down the road.
Medical Bills Cause Major Credit Damage
It is estimated that 60% of people who file bankruptcy do so because they can’t pay their medical bills. The cost of everything is rising, and medical costs are no different. In addition to the rising costs, medical providers are making a habit of balance billing, utilizing out-of-network providers during patient procedures, and improperly billing health insurance. All of these can result in medical bills up into the hundreds of thousands of dollars. It is not uncommon for a person to lose their life savings in an attempt to pay these bills. Others aren’t fortunate enough to have sufficient funds in a savings account. Because of this, many Americans have lost their home and have filed for bankruptcy. When this happens, a person’s credit score is adversely affected.
How a Credit Bureau Can Help
If you are struggling under the weight of medical debt, contact a medical billing advocate, preferably one who specializes in compliance in medical billing. This advocate might be able to help reduce your healthcare costs to an amount more easily paid off over time.
Something no one was expecting was a credit bureau to act as a sort of medical advocate. FICO, as Fair Isaac Corp. is better known, has recently announced their plan to reduce the impact medical debt has on consumers’ credit scores. How will they do this?
- They will raise a consumer’s score by 25 points if they’re dealing with medical debt but otherwise have a strong credit history. In other words, if they regularly pay all of their bills and the only issue they’re having is their medical bills, FICO will raise their score.
- Unpaid medical debts will carry less weight than they used to. It won’t be as easy for your credit score to slip simply because of medical bills.
- Past medical debts that have since been paid will not be a contributing factor in new scores.
What the Credit Bureau is Realizing
The credit bureau has realized that just because someone has unpaid medical debt doesn’t mean they don’t have a good record of paying off creditors. Nor does it mean that they won’t pay off future creditors. It simply means they have an abundance of medical debt that they’re having a hard time paying off.
Another factor that has contributed to this credit bureau acting as a medical advocate is that they now realize the majority of American debt is due to medical expenses. In addition, they recognize that just because someone has insurance doesn’t mean their insurance coverage is good.
Americans are already paying high prices to cover their monthly premiums; some families pay over $700.00 per month for coverage. They pay this and still there is no guarantee that medical procedures will be covered.
How Debt Looks on Your Credit Report
In the past, a person’s credit report didn’t differentiate between unpaid medical bills, unpaid utility bills, or unpaid credit card debt. When a creditor looked at a report, all they saw was that there were unpaid bills and that the person had been sent to collections.
The credit bureau is trying to change this. What will this accomplish? By differentiating between medical debt and credit card debt, a creditor can make a more informed decision. A lender will more easily trust someone who is going through a rough financial patch because of medical debt than they would trust someone who is racking up credit card debt.
Additional Understanding from the Credit Bureau
The credit bureau is now choosing to acknowledge the fact that medical billing can take months to sort out. Patients may wrongly be sent to collections for numerous reasons. In some cases, it can take weeks or months before a patient is properly billed. This is another reason why the credit bureau is extending a break to the American consumer.
For many Americans, one of the most important numbers you can know is your FICO credit score. It can be extremely disheartening when you make a mistake and see your credit score fall. It’s even worse to see your credit score fall because of something you have no control over, such as high medical bills. Thankfully, the credit bureau is making some changes to accommodate the consumer who is dealing with heavy medical bills. In a way, the credit bureau is acting as a medical advocate for patients dealing with medical debt.
