Consumer Watchdog Says Medical Bills Unfairly Sink Credit Scores

Photo (cc) by LendingMemo

Your credit score could take an unreasonably large hit if you have unpaid medical debt. That’s not fair, says the Consumer Financial Protection Bureau, the government’s consumer watchdog agency.

A new study finds that consumers’ credit scores may be overly penalized because of medical debt. Thus, if you don’t pay your medical bills in full right away, they could come back to haunt you, potentially costing you thousands of dollars in borrowing costs. According to The Wall Street Journal:

More than half of all debt collection activity on consumers’ credit reports comes from medical bills, according to the Federal Reserve. Such activity results in lower credit scores for consumers, meaning that lenders are more likely to be cautious in extending credit.

The CFPB said many credit-scoring models fail to differentiate between unpaid medical bills and other bills in collection, like past-due rent, utilities or cellphone bills. While consumers know what they’re expected to pay for rent or utilities, medical expenses are often unpredictable and costly. A CFPB press release says:

Sometimes insurance companies do not cover the entire cost of medical procedures, but consumers may not realize they owe money until they are contacted by a debt collector. Even if they pay it off, their credit scores could take a hit.

The CFPB examined more than 5 million credit reports and scores from 2011 to 2013, as well as the payment histories of those consumers. It found that people with unpaid medical bills pay other bills at the same rate as consumers whose credit scores are 10 points higher. For those who pay medical bills late, they’re dinged up to 22 points. A 10- to 22-point difference in your credit score can potentially cost you tens of thousands of dollars in borrowing costs, according to the CFPB.

“Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer’s credit score,” said CFPB director Richard Cordray. “Given the role that credit scores play in consumers’ lives, it’s important that they predict the creditworthiness of a consumer as precisely as possible.”

The CFPB is urging credit-scoring firms to adjust their formulas to treat medical debt differently than other debt. The agency said that would give borrowers a more accurate view of the creditworthiness of an individual.

Has medical debt unfairly hurt your credit? Share your comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
This Pastime Can Keep Your Brain Sharp as You Age
This Pastime Can Keep Your Brain Sharp as You Age

It’s never too late to benefit from taking up this type of activity.

The 2 Biggest Retirement Fears of Baby Boomers
The 2 Biggest Retirement Fears of Baby Boomers

Boomers have a lot of worries as they age, but two stand out.

17 Unusual Things You Can Clean in a Dishwasher
17 Unusual Things You Can Clean in a Dishwasher

Many everyday items do not require meticulous hand washing.

10 Ways to Nail Savings on Your Remodeling Project
10 Ways to Nail Savings on Your Remodeling Project

Here’s how to save on your next remodeling project with discounted materials and more tips and tricks.

3 Cable TV Companies Hiking Prices for 2020
3 Cable TV Companies Hiking Prices for 2020

Still married to your cable company? Hold on to your wallet!

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.