Medical Collections, Scoring Scrutiny Grows

An estimated 43 million Americans carry delinquent medical debt on their credit reports and medical bills account for about half, or 52%, of all overdue debt appearing on reports, according to a study released Thursday by the Consumer Financial Protection Bureau.

For 15 million people, medical debt is the only debt they have in collections in their credit report.

The CFPB announced along with the report that major credit reporting agencies — including Experian, Equifax and TransUnion — will be required under new reporting rules to list any complaints they receive about the accuracy of consumers’ credit reports. The information should help the CFPB identify the types of debts that are more likely to be reported erroneously.

The CFPB's report comes at a time when the credit reporting bureaus and consumer advocates are seeking to revamp the way credit worthiness is measured.

Fair Isaac Corporation (FICO) recently started using a new scoring model that changes the way medical debt is weighted and no longer factors in overdue payments that have since been made. The CFPB expects to propose new rules for collection agencies next year, focusing on accuracy and how consumers are treated.

"It’s hard for consumers to navigate the medical debt maze and come out with a clean credit report on the other side," CFPB Director Richard Cordray said in a statement. "Getting medical care should not make your credit report sick."

Medical bills are usually unpredictable, piling up after a sudden diagnosis or debilitating injury. This makes it difficult, or impossible, for people to save or prepare, the report notes. At times, medical bills come after a discrepancy between a doctor and an insurance company, meaning the patient may not even find out they owe something until after they receive a collection agency's notice. By then, the bill already has damaged their credit history and led to a credit score drop.

That said, people with medical debt tend to pay their bills at the same rate as people with higher credit scores, the CFPB found in a study released earlier this year. People who paid off medical debt that had landed in collections also were more likely to repay the rest of their debt, the study showed.

Medical bills that are sent to collections and harm credit scores often minor, when compared to other debts. The average medical bill sent to collections was $579, compared to an average of $5,587 for auto loans, according to the CFPB. But small debts can damage scores. An unpaid bill of $100, for example, can reduce a credit score of 680 by more than 40 points, according to one of the scoring models used by FICO. Someone with a score of 780 can see the score drop by more than 100 points.