CFPB: Medical Debt Overly Dinging Consumers’ Credit Scores

Here's another reason why some Americans are finding it tough to get a mortgage: medical debt.

A recent report from the Consumer Financial Protection Bureau shows that some consumers' credit scores may be overly penalized for medical debt that goes into collections and shows up on their credit report.

As a result, credit-scoring models may underestimate the creditworthiness of consumers who owe medical debt in collections. The scoring models also may not be crediting consumers who repay medical debt that has gone to collections.

Part of the problem, the CFPB says, is that the consumer credit reporting agencies treat medical debt the same as any other debt. But, as the CFPB points out, it's not the same as going to collections for things like utility bills, because, very often, medical debt arises from unforeseen events such as injuries and illnesses.

Sometimes the debt arises from billing issues with medical providers or insurers. The CFPB says some of the complaints it has received indicate that many consumers do not even know they have a medical debt in collections until they get a call from the collections agency or they discover the debt on their credit report.

Meanwhile, a study by the Federal Reserve Board shows that more than half of all collections on credit reports are associated with medical bills.

The CFPB's report concludes that allowing for different treatment of medical and non-medical collections in credit scoring models may increase the credit scores of some consumers. This, in turn, could make it easier for more consumers to be approved for loans including mortgages.

The report also concludes that the third-party debt collectors and data furnishers that provide data on medical debts to the reporting agencies need to do a better job of reporting when a medical debt has been paid off. Current credit scoring models in general do not account for repayment of medical debts in collections, the report finds.

To read the full report, click here.


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