If you've struggled with your credit score or been confused about it in the past, you should know that the model is changing for the better. Credit scores are starting to evolve, and the latest model is looking at medical debt and starting to reduce its impact on your credit. If you've previously considered bankruptcy or debt reduction techniques with your attorney, this is something you need to know about.
For some people, reducing the impact of medical debt on a credit score can improve the chances of obtaining credit at lower rates significantly; mitigating the impact of medical debt collection activity alone can help around one in five Americans of working age.
Why is medical credit debt such a big deal? There are several reasons. When a person can't pay or misses a payment for a medical bill, that bill heads to collections. Sometimes, that has a heavy impact on credit. Worse yet, some patients don't get their bills until months after their treatments, meaning the bills have gone to collections without them having a chance to pay. While the debts can be argued and cleared up, it can take months to reverse the damage that has been done to a credit score due to the mishandling of bills.
The newest version of FICO, the company that creates most of the commonly used credit scores today, differentiates between medical debts and non-medical collection accounts. The impact may not seem significant immediately, but changing how the accounts weigh into the overall credit score does make a difference.
What impact will the changes have? Anyone with only medical debt should see a credit score increase of 25 points. That could push someone from a bad score to an average score, from average to good, and so on, giving more options when it comes to future credit needs.
Source: Forbes, "Why You Should Be Excited About New Credit Score Models," Robert Harrow, Aug. 05, 2016