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Medical Debt May Weigh Down Consumer Credit Scores, Report Finds

By Ben Weyl, CQ Roll Call

May 20, 2014 -- Medical debt may be unnecessarily weighing down consumers' credit scores, according to a new report by the Consumer Financial Protection Bureau (CFPB), potentially costing them thousands of dollars when seeking loans like home mortgages.

Many credit scoring models currently in use don't treat debt incurred for medical costs differently than other type of debt. The CFPB thinks that's a mistake.

The study released last week shows that consumers who owed medical debt generally paid back their loans or bills on par with consumers with credit scores about 10 points higher.

The report also found that consumers who subsequently paid medical debt that had gone into collections were as likely to pay back their debts as people with credit scores of 16 to 22 points higher.

One likely reason is that unlike a failure to pay a credit card bill, medical debt often results from unpredictable events and doesn't necessarily stem from an inherent lack of creditworthiness.

The bureau reached its conclusions after reviewing 5 million credit records, looking at the credit histories and scores of anonymous consumers in September 2011 and then examining their actual loan payment patterns through September 2013.

"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 bureau is the first federal government agency to supervise credit reporting companies, but for now, it is not preparing regulatory action on the matter, a senior CFPB official said.

Instead, the official told reporters on a conference call, the bureau is simply trying to inform the debate over how medical debt is treated.

Still, if credit bureaus don't change course, it's quite possible the agency may eventually require them to change their scoring models.

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