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Report: credit-scoring models often treat medical debt unfairly

A report issued last month by the Consumer Financial Protection Bureau concluded what many Americans already know to be the case—hefty medical bills are having a bad impact on consumer credit scores, and in many cases unfairly. The problem, according to the report, lies not only with the way the medical industry handles medical debts, but also with the credit-scoring models currently used.

With respect to the latter point, the report found that these credit-scoring models oftentimes underestimate the creditworthiness of consumers with medical debt, as well as those who have repaid medical bills that were previously in collections. The report notes that, while medical debt is oftentimes treated the same as unpaid monthly bills for credit-scoring purposes, it is a very different type of debt. 

Sources have it that over half of what is listed in credit reports is some form of medical debt. Many times consumers are not even aware when a medical debt is sent to collections. Those who look into the issue soon come to discover that part of the reason is that health care institutions are quick to send unpaid debt to collections.

Medical debt can obviously be a major burden on individuals and families who live under it. When it becomes bad enough, the possibility of filing for bankruptcy may emerge as the most sensible option. Obviously, filing for bankruptcy is not a decision to ever be taken lightly, but there are cases where it is the most sensible way to handle the debt. 

Source: The Hill, “Feds: Medical debt ruining credit scores,” Benjamin Goad, May 2, 2014. 

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