After a review of five million credit reports, the U.S. Consumer Financial Protection Bureau has found that credit scores overly penalize Americans with medical debt. Credit scores are used to determine whether borrowers can take out loans, and assist lenders in deciding whether to extend loans and how much interest to charge for them.
"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 Richard Cordray, director of the CFPB. The bureau's review found that the creditworthiness of those who owe or pay off medical bills might be underestimated by scoring models used by credit-rating agencies.
Studies estimate that as much as 60 percent of bankruptcies are caused by medical debt, and that one in five Americans were contacted by a collection agency about their medical bills last year. Credit-rating agencies treat all debts the same, but Cordray argued that there should be an adjustment for the complicated billing process involving medical debt.
The CFPB studies have shown that those who owe medical debt pay their bills at the same rate as consumers with credit scores ten point higher. Over half of the collections reflected on credit reports are the result of medical bills.
The increasing cost of care and rising insurance premiums means that many Americans are not prepared for an unexpected medical expense. In these cases, their only options are to enter into debt, or refuse treatment and likely have to endure a decreased quality of life. These debts can greatly affect a hospitals ability to provide quality patient care.