Is it fair that medical debt reduce a consumer’s FICO Score? That is the question being batted around in the Consumer Protection and Credit arena. The goal is to protect consumers from unfair credit damage but the implications to anybody who uses a FICO Score to evaluate credit are significant.
Medical debt is exactly the same as any other debt in terms of the Creditor’s right to litigate. If this debt is devalued as a factor in FICO Scores you will be given a score that does not reflect that danger.
For example, if you need a FICO Score of 650 or higher to grant credit or tenancy a debtor with a lot of Medical debt may have a score of 650 under a restructured scoring system but be just as likely to default as a current $600 score. A similar applicant also has a 650 FICO Score with no Medical debt, but here the figure is a more accurate reflection of actual credit risk.
Already small Medical bills are not reflected in FICO Scores. Fairness is not the issue. What matters here is your ability to make a critical judgment on the credit worthiness of a prospect. From your prospective, all debt must be considered equally because it all affects a consumer’s ability to pay bills.
When you evaluate Credit, don’t just look at the FICO Score. Go down the page and take a look at charge offs, collection accounts and other indications of unpaid Medical debt. If there is a lot of it, it could cause you problems even if it isn’t reflected fully in the FICO Score.
At this time, there doesn’t seem to be any reevaluation going on regarding other categories of bad debt. Medical debt, however, makes up a large segment of consumer debt and it will, if implemented, alter FICO Score results and will eventually cause you to make a FICO based decision that will cause you financial harm.
I will keep you informed of what happens here. Sometimes these attempts at ‘fairness’ con never consider that when the consumer gets a ‘break’ the Creditor gets hurt. There’s nothing fair about that.
Do you want a system that allows creditors to ignore some Medical bills with no credit repercussions? How could that possibly help?