VantageScore Excluding Medical Bills from Credit Scores

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VantageScore Excluding Medical Bills from Credit Scores

According to the Wall Street Journal, VantageScore Solutions LLC said on Tuesday that it would no longer include medical invoices that have been sent to collections in its credit rating algorithm. 1

The VantageScore, which was developed as a collaboration between the main credit reporting agencies, is not as commonly used as the FICO score, but the move builds on previous credit bureau adjustments and may result in more good changes in the future.

Key Takeaways

  • The VantageScore credit rating methodology will shortly stop computing scores based on unpaid medical collections.
  • The ruling follows credit bureau measures to lessen the effect of medical collections on consumer credit reports.
  • According to the credit score business, medical bills in collections have minimal predictive value when it comes to a consumer’s creditworthiness.
  • According to the firm, millions of customers might see a rise of up to 20 points in their VantageScore credit ratings.

VantageScore Takes the Industry’s Next Step in Addressing Medical Debt

Despite broad health insurance coverage in the United States—more than 90% of the population having some type of health insurance—a recent Kaiser Family Foundation study found that around 9% of Americans had medical debt.

Three million of the 23 million individuals in question have outstanding medical bills totaling more than $10,000, and Black adults, persons in poor health, and people with impairments are disproportionately impacted. 2

However, according to VantageScore Solutions LLC, outstanding medical bills are not a strong predictor of whether or not someone will fulfill their financial commitments, which is what credit scores are supposed to accomplish. As a consequence, FICO’s rival has chosen to discontinue using unpaid medical collections in its most recent credit score versions beginning in October of this year.

  How Credit is Scored/Rated for Individuals, Companies, and Governments

The choice, though, did not come out of nowhere. Several years ago, VantageScore started decreasing the effect of medical costs on certain of its credit scoring algorithms.

In March, the three national credit bureaus that collaborated to develop the VantageScore announced that they would remove all paid medical collection accounts from credit reports, extend the reporting grace period from 180 days to a full year, and soon remove all unpaid medical collections under $500.

So, what’s the snag? According to VantageScore, millions of people might see a credit score improvement of up to 20 points, and its credit score is used by over 2,600 lenders and other financial institutions. However, the FICO score, its counterpart, is still the most often utilized score in loan decisions. So, although this is a beneficial development, it may not have much of an immediate effect on customers.

However, it keeps the credit reporting industry’s attempt to handle medical expenses more correctly on track. For example, the most current FICO scoring model eliminates paid medical and other collection accounts3, and after VantageScore’s decision to exclude medical collections completely, FICO may follow suit.

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