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Why medical debt is different from other debt

People with lots of unpaid medical bills could be getting a break on their credit scores

Fair Isaac Corp., otherwise known as "FICO",  says it is changing its calculations to ease the impact of medical debt that’s gone to collection. 

So what is it about medical debt that makes it different from all other kinds of debt?

“When you go to the Gap to buy jeans, you ultimately know at the time of purchase exactly what the cost of that is going to be,” says Ken Brevoort, senior economist with the Consumer Financial Protection Bureau. When you pay for your "1969 ultimate panel cuffed always skinny jean," you are the only person paying the bill.

When you go to the doctor – usually – it’s you and your insurance company.

“When you have the insurance involved, you don’t necessarily know what’s going to be your portion and what’s going to be the insurance’s portion,” says Brevoort.

Here’s the thing: paying medical bills is so complicated sometimes the consumer doesn’t even know when they still owe money. FICO senior consumer credit specialist Anthony Sprauve says ignorance isn’t a good reason to give someone a lower FICO score.

“We recognize that it’s not an indicator of a person struggling in most cases when it’s happening by itself,” he says.

The federal government estimates about 7 percent of consumers have unpaid medical bills that have gone to collection agencies. Those consumers could see a 25 point or better score under FICO’s changes, says Sprauve.

“They are going to have access to more credit and they are going to be able to get credit as a lower price,” he says.

That’s the good news. The bad news is more and more consumers must wade into the byzantine world of healthcare billing.

Which means if you want to make sure you’re up to date on your bills, it’s still on you.

About the author

Dan Gorenstein is the senior reporter for Marketplace’s Health Desk. You can follow him on Twitter @dmgorenstein.

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