Medical Debt to Weigh Less on Credit Scores

Medical Debt to Weigh Less on Credit Scores.

The number one cause of personal bankruptcy has less to do with spendthrift habits and a great deal more to do with bad luck when it comes to your health: medical bills are the leading reason that Americans file for bankruptcy.

Fair Isaac Corp. (FICO) – the country’s most widely used credit score – announced plans to reduce the impact of medical debt on its credit-scoring model. This is great news for consumers.

The changes to FICO scoring will help millions, raising scores an average of 25 points for people who have medical debt but otherwise good history of paying bills.

“Many consumers have medical debt, and we’ve found that this does not necessarily indicate an unlikeliness to repay other debts,” Anthony Sprauve, FICO’s director of public relations, told NerdWallet. “Giving less weight to unpaid medical bills in collection — which, by the way, are more than 50% of all unpaid collection debt — is a way to possibly increase the chances of someone who is otherwise a good credit risk getting a loan.”

This means that FICO scores will distinguish between medical and non-medical debt, suggesting the credit world is taking steps to recognize a $300 emergency room bill after a bad day in the sun is different than chronic overspending on a credit card.