VantageScore Excluding Medical Bills from Credit Scores
The FICO competitor says unpaid medical collections aren't a good predictor.
Ben Luthi
Ben Luthi has been writing about credit cards and personal finance for six years and has written for U.S. News, NerdWallet, CreditCards.com and Experian, among others. Ben has developed many of Investopedia's in-depth credit card reviews and enjoys collecting and redeeming credit card miles and points in his everyday life and international travels.
On Tuesday, VantageScore Solutions LLC said that it would stop including medical bills that have been sent to collections in its credit scoring model, according to a report from the Wall Street Journal.
The VantageScore, which was created as a joint venture between the major credit reporting agencies, is not used as widely as the FICO score, but the move builds on recent changes from the credit bureaus and can result in more positive changes down the road.
The VantageScore credit scoring model will soon no longer take unpaid medical collections into account when calculating scores.
The decision comes on the heels of changes made by the credit bureaus to reduce the impact of medical collections on consumer credit files.
The credit scoring company cites the fact that medical bills in collections have little predictive value when it comes to a consumer's creditworthiness.
The company says that millions of consumers may see an increase of up to 20 points in their VantageScore credit scores.
VantageScore Takes the Industry's Next Step in Addressing Medical Debt
Despite widespread health insurance coverage in the United States—more than 90% of the population has some form of health insurance—about 9% of Americans have medical debt, according to a recent analysis by the Kaiser Family Foundation.
Among the 23 million people in question, three million have more than $10,000 in unpaid medical bills, and Black adults, people in poor health, and people with disabilities are disproportionately affected.
But unpaid medical bills aren't a good predictor of whether or not someone will pay their debt obligations, says VantageScore Solutions LLC, which is what credit scores are designed to do. As a result, the FICO competitor has decided to stop factoring unpaid medical collections into its latest credit score versions starting in October of this year.
The decision didn't come out of the blue, however. VantageScore began reducing the impact of medical bills on some of its credit scoring models several years ago.
And in March, the three national credit bureaus, which created the VantageScore as a joint venture, announced that they would remove all paid medical collection accounts from credit reports, extend the reporting grace period from 180 days to a full year and soon remove all unpaid medical collections under $500.
So, what's the catch? VantageScore says that millions of consumers could see a credit score increase of up to 20 points and that more than 2,600 lenders and other financial institutions use its credit score. However, its competitor, the FICO score, is still the most widely used score in lending decisions. So while this is a positive change, it may not have much of a direct impact on consumers, at least not immediately.
However, it does keep the ball rolling on the credit reporting industry's initiative to handle medical bills more appropriately. For example, the most recent FICO scoring model excludes paid medical and other collection accounts, and following the decision by VantageScore to remove medical collections entirely, FICO may be next.
The Wall Street Journal. "Major Credit-Score Provider to Exclude Medical Debts."
Kaiser Family Foundation. "1 in 10 Adults Owe Medical Debt, With Millions Owing More Than $10,000."
FICO. "When Do Medical Bills Affect Your Credit?"
Credit Bureaus to Remove Most Medical Debts from Credit Reports
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