Newspaper article St Louis Post-Dispatch (MO)

Gallagher: Credit Scorer Goes Easier on Medical Debtors

Newspaper article St Louis Post-Dispatch (MO)

Gallagher: Credit Scorer Goes Easier on Medical Debtors

Article excerpt

Should you happen to be hit by a bus today, expect three forms of misery.

1. It will hurt.

2. You'll be off work, and probably lose pay.

3. You'll face big medical bills, and that may wreck your credit.

Since you didn't plan to be hit by a bus, you may not be able to pay those medical bills on time and they'll end up with collection agencies.

To the computers that make most credit decisions, your moment of bad luck makes you look like a deadbeat. You'll be sentenced to seven years of credit purgatory banned from the better deals on mortgages, auto loans and credit cards.

The good news here is that FICO no longer thinks that's proper, and FICO carries some clout. It is the nation's main credit scoring company. Its latest credit scoring revision due for release this fall gives less weight to delinquent medical debt.

Someone whose only black mark is medical debt would see their scores rise 25 points, FICO says.

The system has a gift for other troubled consumers too: It ignores all debt that went to a collection agency but was later paid in full. No longer would it curse your credit for seven years.

Debtors, however, should not break into cheers. Lenders will be very slow to adopt the new FICO model, and some probably never will.

Fannie Mae and Freddie Mac, which dictate the rules for conventional mortgages, still haven't adopted FICO revisions made in 2009. Many other lenders haven't either.

"It will have no effect in the very short term," said Gerri Detweiler, director of consumer education at Credit.com and an author of books on consumer credit. "Over time, hopefully, it will offer change for consumers."

That's sad, because a single collection account can destroy a credit score.

The federal Consumer Financial Protection Bureau says a credit score of 780 would drop to 665 with one debt referred to collectors. That would turn a borrower with sterling credit into an outcast who would have a hard time landing a decent conventional mortgage.

Medical debt blindsides people. Families don't budget for heart attacks.

Employers spent the past decade raising deductibles and co-pays, so health insurance is paying less. A family can fall behind on the bills. …

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