Medical Debt Could Have Less of an Impact On Your Credit


3 November,2014

FICO 9 is on the way, and this could be a positive thing for your credit — at least if you have medical debt. Right now, the way medical debt is weighted in the scoring system, it could have a big impact on how financial services providers view you. But that could be changing as FICO continues to tweak its algorithm. Starting sometime this fall, your medical debt is likely to have less of an impact on your credit score.

Less Weight for Medical Debt

In the past, FICO’s scoring algorithm has treated medical debt similarly to other types of debt. However, research indicates that medical debt doesn’t actually predict consumer behavior as well as, say, credit card debt or other types of loans. Medical debt seems to be its own special case. As a result, FICO is reducing the weight it gives to medical debt. It will still influence your credit score, but it won’t have such a huge impact as it’s had in the past.

On top of that, if you’ve had medical debt in collections, but you have paid off the account, it will no longer impact your credit score. This could be a potential boon for thousands of consumers who have been struggling due to medical debt. With the lower weight for medical debt, some consumers might find themselves eligible for better loan rates.

Medical Debt on Your Credit Report

It’s important to understand that your FICO score isn’t the same thing as your credit report. FICO takes information in your credit report and uses it to come with a credit score. It’s important to understand this distinction because you should know that this new scoring algorithm won’t change what appears on your credit report. So, the medical debt will still show up on your credit report. If you look at your credit report, you will discover that the medical debt is still there. It’s just that the FICO scoring model won’t weigh the medical debt the same way it has in the past.

You should also understand that this may not impact your other scores. Many credit reporting agencies and even banks have their own scoring models. While many use FICO as a basis, not all of them do. This means that a score based on non-FICO credit scoring algorithms may not have the same results. Many models follow FICO’s lead, and that could lead to medical debt having less of an impact in other models as well, but you can’t count on it.

Keep Your Credit Score High

Of course, the best way to keep your credit score high is to follow solid financial practices. Make it a point to pay your bills on time, and to live within your means. Keep your debt levels low, and, for the most part, you won’t have to worry about how weighted your medical debt is. Make it a point to follow good financial and credit habits, and you’ll qualify for the best loans and the best loan terms, no matter what scoring model is being used.