On June 25, it became a whole lot harder for many American families to get a mortgage. That’s when credit reporting agencies changed their models, which will now penalize consumers for making only minimum payments, even if they’re on time. Even more alarming, the minimum score to be considered “good” will skyrocket up to 720, which will place the American dream a little further out of reach for millions of people.
Our credit score has quietly become part of our identity. So-called-experts have made an entire industry out of sharing the newest secret to improving your credit score.
But what’s the real secret?
Medical debt. Fifty percent of the notations on credit reports are due to medical debt. To be blunt: the credit reporting industry relies on patients’ medical debt information that should probably never have been on a credit report to begin with.
Why is that? Research has shown that including medical debt on a credit report actually makes the report less accurate and less predictive of a consumers’ ability to pay.
These reports, which in theory allow businesses to accurately predict who will be a secure loan, do not work because of medical debt. In fact, one recent report concluded that the presence of a medical collections tradeline on a credit report is actually less predictive of future defaults or serious delinquencies than other types of debt. So including medical debt on a credit report doesn’t really help anyone but the debt collection agencies who make their money by buying debt for pennies on the dollar and then harassing patients to pay.
Even worse, often these debt notations are inaccurate and based on false claims. There is no standard for reporting medical debt, and often offices will inappropriately “park” debt on reports while they wait for an insurance company to pay so that the patient is pressured to pay in the interim. How many of you have ever received a call about a debt you didn’t know you had and probably didn’t actually owe? This practice is unethical and unfair.
As Americans, we should support both a healthy economy and a healthy society. How can we expect our patients, struggling with life-threatening illness, to properly recover when they are under pressure to cut corners in their care because of cost and fear of debt? In fact, one study showed that as a country, we fear the debt from a complex medical procedure more than death. Something is indeed rotten in the state of health care.
We need a system that is more accurate and fair for patients, consumers and businesses alike. Medical debt is different from other debt. It is not pre-meditated – nobody chooses to have cancer—and so should be eliminated from your credit report as soon as it’s paid, in a matter of days rather than lingering on a credit report for up to seven years, prolonging the negative impact it has on the patient’s credit score. Patients, too, should be notified of an alleged debt before it gets incorporated into their credit score, and have a fair amount of time to either pay their debt or dispute it if it was reported in error rather than having their credit dinged as soon as they’re released from the hospital.
As we consider the harmful effects that medical debt and these new regulations will have, we must remember: we will all be patients one day. As long as we are judged by a number, we should ensure that number is fair and accurate.
Alan Balch is president and CEO of National Patient Advocate Foundation.