Credit/Debit Cards

Unpaid medical debt may have over-inflated effect on credit scores

Credit ScoreNew research released on Tuesday by the CFPB indicates that unpaid medical debt may keep some consumers from obtaining access to credit—a problem that may affect up to 50 percent of borrowers in collections.

According to the report, consumers’ credit scores may take a substantial hit for medical debt that is passed to collections and reported to the big three credit reporting agencies.

The report said, however, that credit scoring models currently used may underestimate the creditworthiness of an otherwise creditworthy consumer and may not credit consumers who have repaid medical debt that has gone to collections.

Data from the Federal Reserve shows more than 50 percent of all collections reported on credit reports are associated with unpaid medical debt. In many cases, consumers are not even aware of the medical debt, a majority of which is reported to credit agencies by third-party collection companies.

The CFPB study found that current credit scoring models may underestimate creditworthiness by 10 points for consumers who owe medical debt and 22 points for consumers who have already paid off the debt.

“Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs,” CFPB Director Richard Cordray said. “Those costs should not be compounded by overly penalizing a consumer’s credit score. Given the role that credit scores play in consumers’ lives, it’s important that they predict the creditworthiness of a consumer as precisely as possible.”

Last year, Sen. Jeff Merkley (D-Ore.) and Rep. Maxine Waters (D-Calif.) introduced legislation that would require credit reporting agencies to delete reports of delinquent medical debt within 45 days after it has been paid or settled, though the bill never moved past committee.

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