Leading credit score provider will no longer count medical debt [Video]

One of the two major credit score providers is set to erase medical debt from its newest scoring models to help the most financially vulnerable people improve their credit scores.

VantageScore plans to remove medical collection data — regardless of amount owed or age of collection — from its two most recent score iterations, VantageScore 3.0 and 4.0, by mid-October.

The move could boost some Americans’ credit scores by up to 20 points, the company said.

“In our credit scoring models, medical collection accounts have minimal impact on the predictability of creditworthiness for a large segment of the population. As such, we are taking the proactive step of removing information from our models entirely,” VantageScore President and CEO Silvio Tavares said in a press release. “Our decision reflects VantageScore’s ongoing efforts to offer the most predictive scoring models and to help increase financial inclusion.”

As VantageScore prepares to remove medical debt from consumer credit reports, many Americans may soon see their credit scores improve. (Credit: Getty Creative)

The decision builds on recently announced moves by credit bureaus Equifax, Experian and TransUnion to remove paid medical debt from 70% of consumer credit reports and follows a series of reports this year from the Consumer Financial Protection Bureau. (CFPB) showing the negative implications of medical debt on credit reports.

One in five consumers had unpaid medical bills in collections, according to a CFPB study. The consumer watchdog also found that medical recoveries were less predictive of future repayment risk than other recoveries or payment history on loans. This prompted major credit bureaus to reevaluate whether medical debt should be included in credit reports.

“We’ve known all along that medical debt doesn’t predict credit default,” Mike Litt, consumer campaign manager for the US PIRG Education Fund, told Yahoo Money. not to be reported or considered at all.

About two dozen people eventually filled the

About two dozen people eventually filled the “Debts and Collections” courtroom in Poplar Bluff, Missouri. Most of the cases on the docket involved medical debt. The Poplar Bluff area in southeastern Missouri is one part of the country where health care providers and recipients of medical care have been burdened with medical costs. (Credit: Michael S. Williamson/The Washington Post via Getty Images)

The largest credit score developer, FICO, has also taken steps to reduce the impact of medical debt on its new credit score models.

“FICO has for years recognized the need to process low-balance and unpaid third-party medical collections in more sophisticated ways, as evidenced by the FICO Score 8, launched in 2009, and the new FICO Score models,” Sally Taylor, Vice -president and CEO of FICO Scores, told Yahoo Money.

For example, its FICO Score 9 has been further refined with regard to the consideration of medical debt, and its FICO Score 10 suite bypasses all third-party payment collections – both medical and non-medical. Additionally, FICO Score 8 to 10 bypasses third-party collections where the original balance was less than $100. And FICO scores 9 and 10 also distinguish between unpaid medical recoveries and unpaid non-medical recoveries.

“This differentiated approach often results in unpaid medical recoveries having a less negative impact on the FICO score than unpaid nonmedical recoveries,” Taylor said.

Alexandria Scott, a patient care technician, puts her hand on her head as patients wait in the emergency room waiting room at Providence Mission Hospital in Mission Viejo, California, U.S., January 27, 2022. REUTERS/ Shannon Stapleton

Alexandria Scott, a patient care technician, puts her hand on her head as patients wait in the emergency room waiting room at Providence Mission Hospital in Mission Viejo, Calif. (Credit: Shannon Stapleton)

While these VantageScore changes will help some people, many will be left behind. According to the CFPB, residents with low income, predominantly black or Hispanic groups are likely to have medical collections on their credit reports that go unpaid.

“Consumers will be able to have doors locked on them by lenders using VantageScore credit scores that have been unfairly affected by medical debt,” Litt said. “Now is the time for the three national credit bureaus to completely stop declaring medically necessary debt, the debt will have no impact on the credit score used in the market.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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