At Last! Americans Without Medical Debt Problems

Last Update: February 22, 2021 Financial News

Ever found yourself being locked out on a loan because apparently, you have a medical debt collection that you never knew you had? Or ever recorded a bad credit score because you had a medical debt you were willing and able to clear? Well, that has been the story of more than 200 million Americans.

For a long time, debt collection has caused many concerns lodged to the CFPB by Americans with medical debts glassing off as the top debt. Earlier this week, the three largest credit-reporting agencies, namely, Equifax, Experian, and TransUnion, passed on a new policy agreement, which would see many Americans who have for long been affected by bad credits due to medical debts breathe a sigh of relief. This move is what has been seen by credit experts like John Ulzheimer to be the most significant change in credit reports.

The Policies

In the past, consumers would be caught unawares to find out that they have medical debt in their reports and would not be able to correct it at the time. Due to this, the agencies have a policy that any bad medical debt would not be reported until after 180 days to give the insurers time to clear out their payments. A study by the Federal Reserve Board found that more than half of all bad credit reports were due to medical bills. This triggered the agencies to offset consumers of that burden since it resulted from insurance delays and not their blame. This policy also turns out to be the solution to doctor’s offices’ immediate bad reports about the debts before asking.

A research report by the Consumer Financial Research Bureau showed that consumers were overly charged for their medical debts. A medical debt collection would see a consumer’s credit score drastically drop by about 10%. This prompted the credit score provider FICO to change their formula for calculating scores to reduce the effect of bad medical debts.

A lot of bad medical debts that had not been cleared are what led to debt collection. This negatively affected the credit score. A credit score is used for over 200 million people by lenders to check their creditworthiness. Due to this, the three agencies saw it wise to improve the accuracy of the credit reports.

Benefits of The Policy

The 6-month wait will see to it that the insurer completes payment before a credit report, and thus, consumers will maintain a good credit score.

This grace period will also allow the consumers and the insurance companies to resolve their disputes over the bills’ payment. This would also enable the insurance process to fully take place and verify the medical claim before it is reported as a debt.

Once they have been cleared, all medical debts would enable the consumers to have clean credit reports as most collection problems would be deleted.

Although it is hard to clear up all collections, the new formula for calculating FICO’s credit score would result in the medical debts having a low impact on the score.

The policies would allow over 200 million people in the US not to be locked out on loans. All paid debts would be deleted; consumers would put off the burden of having poor credit records due to medical debts.

To increase the credit reports’ accuracy, the consumers should be kept informed about their various debts before recording them, as some may be willing and able to pay for them.

Personal Opinion

These policies are good news to many since more than half of the bad reports are actually from medical bills. Once adopted by lenders, this policy would see consumers affected, access loans, and get reasonable interests for them.

However, it is important to realize that it would only affect borrowers who had significant medical debts and not all other non-medical debts.

This move should also be considered for other non-medical debts since it would also help those not affected.

The policy of changing the formula for calculating credit scores in respect to medical debts is good. The false belief that people had that medical and non-medical debts saw consumers being penalized hugely. However, the plain truth is that medical debts are not good predictors of a person’s creditworthiness.

Without a doubt, this move would have a significant impact on the lives of many Americans. Since the credit score helps one even secure employment, this change would, in the long run, lead to an increase in their livelihoods due to access to loans.

This is indeed the right direction for credit agencies to take. Caring for people’s needs goes a long way in getting their job done and making a positive impact on the world at large. It is a project worth being emulated by other countries.



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