The CFPB recently released their “Medical Debt & Credit Scores” report. This report looked at 5 million anonymous credit records from September 2011 to September 2013 in order to determine how medical debt affects an individuals credit score and their loan repayment over the next two years. There was two key take aways from the report
- Medical debt & non-medical debt are not equivalent. This is because medical debt is largely unplanned.
- People with medical debts have lower credit scores than they should have. On average their credit scores are 10 points lower than they should be.
- People that have paid off medical debt have even lower credit scores than they should have, on average their credit scores are 22 points lower than they should be.
Our thoughts
It’s interesting that the CFPB found this data, I was fully expecting for them to be advocating for changes to credit scoring models when the delinquency rates didn’t support this change. What is perplexing is why the two major scoring models (FICO & VantageScore) haven’t investigated this earlier and changed the scoring models to reflect this data. It’ll be interesting to see if FICO9 includes a differentiation between medical & non medical debt.
In the coming weeks we are going to be putting a greater focus on DIY credit repair practices, starting with best practices for removing medical expense items from your credit report to help improve your credit score.
