Credit Infocenter

New FICO 9 Scoring Model Good News for Consumers with Medical Debt

August 8th, 2014 · No Comments · Credit Scores

by Kristy Welsh

(Last Updated On: February 26, 2018)

New FICO 9 Scoring Model Good News for Consumers with Medical DebtIf medical debt has been dragging down your credit score, you’re in for a treat this fall when FICO’s new scoring model kicks in.

FICO 9 will no longer weigh medical debt as heavily as it has in the past. This should have a significant impact on consumer credit scores, as around 50 percent of unpaid accounts in collections are of the medical variety.

FICO 9 Could Raise Credit Scores by 25 Points or More

As reported by The New York Times:

“Individuals with a median score of 711 – and an otherwise clean credit history, except for unpaid medical debts – may see their FICO score rise by 25 points….

“But consumers whose credit files are tarnished only by unpaid medical debts that went to collection agencies – but were ultimately settled or paid – are likely to see a much greater increase in their scores.”

In other words, even if your medical debt is still unpaid, you could see a decent jump in your credit score. But if you’ve managed to pay or settle said debt – or are in the process of doing so – the new FICO model could reward you handsomely.

Welcome News to the CFPB

In May 2014, the Consumer Financial Protection Bureau published a study of whether those with medical debt really do warrant the same lowered creditworthiness as those whose debt is largely of the non-medical variety.

The answer was a resounding no.

As stated in the CFPB’s Data Point: Medical Debt and Credit Scores:

  • Consumers with more medical than non-medical collections had observed delinquency rates that were comparable to those of consumers with credit scores about 10 points higher.
  • Consumers with more paid than unpaid medical collections had delinquency rates that were comparable to the rates of consumers whose credit scores were roughly 20 points higher.

It stands to reason, though, doesn’t it?

Medical debt is something that even the most conscientious consumer can accumulate. This is especially true of consumers whose medical debt went to collections due to an error and/or confusion over what is covered by health insurance and what’s not.

How to Settle Medical Debt

Even with a credit score increase, unpaid medical debt is not something you want on your credit reports. So it’s well worth the time and effort to settle your bills as soon as possible. Here’s how.

With your medical debt paid or settled, you’ll not only free yourself from the debt itself but, as credit expert John Ulzheimer told The New York Times, under the new FICO scoring model, “You could see your credit score go through the roof.”

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