Updates to the way FICO scores are calculated could increase the median credit score of individuals with unpaid medical debts on their credit reports. The recent update is aimed at helping lenders determine who the riskier borrowers are while acknowledging that medical debt is usually obtained under different circumstances than credit card debt or mortgage debt. It also aims to help people who may immediately pay off medical debt that they previously did not know about.
The upgrades come after the U.S. Consumer Financial Protection Bureau issued a report earlier in 2014 that claimed those with medical debt may be unfairly penalized by current credit score models. However, it is yet to be seen if this will make a difference from the vantage point of lenders who may not use the updated scores when making lending decisions. Reports indicate that the new credit scoring model will be made available later in 2014.
Those who have unpaid medical debt on their credit report could see their credit scores rise as much as 25 points or more above where it may otherwise be. This could be the difference between qualifying for a loan at a reasonable interest rate or not qualifying for a loan at all. In some cases, it could be the difference between getting a loan that could stave off bankruptcy or having to go through the bankruptcy process.
Anyone who is debating whether or not to file for bankruptcy may wish to talk to a bankruptcy attorney first. The attorney may be able to guide them through the bankruptcy process, advise them about which type of bankruptcy may provide the most relief and act as a third party between creditors and consumers while they attempt to resolve their current debt issues.
Source: Reuters, “FICO’s new scoring model to help lenders better assess risk“, Amrutha Gayathri and Emily Stephenson, August 08, 2014