VantageScore, a provider of credit scores to lenders, has reportedly decided to remove medical debt from its calculations – a move that could boost the credit scores of many consumers.
The Wall Street Journal reports that the company’s decision goes further than those recently announced by Equifax, Experian and Transunion – the three credit reporting agencies that jointly own VantageScore.
In March, the three credit reporting agencies announced that medical debt transferred to collections, but later paid off, will be removed from a consumer’s credit report. Under current practices, it is still part of the consumer’s credit history.
The Journal reports that VantageScore goes one step further. The company will delete all medical collections of data used to determine a credit score. Company executives told the Journal that they found medical debt was not a good indicator of how well consumers are managing their other debts.
Medical debt often cannot be avoided
According to the Kaiser Family Foundation, two-thirds of medical debt is the result of a one-time or short-term medical expense resulting from a sudden medical emergency or need. After two years of the COVID-19 pandemic and a detailed examination of the prevalence of medical collection debt on credit reports, all credit reporting agencies are now changing the way they view medical debt.
“Especially given the impact Covid-19 has had on consumers, having medical debt does not necessarily reflect someone’s ability to repay a loan,” VantageScore CEO Silvio Tavares told the outlet. .
VantageScore’s action extends to the movements of its parent companies. In July, Equifax, Experian and TransUnion began deleting information about medical bills sent to collections if the bills were paid later. The three companies also deferred including new unpaid medical debt in credit reports for a full year after being sent to collections. Previously, there was a six-month waiting period.
Starting next year, the three credit reporting agencies said they would write off unpaid medical debts if they were below $500. While that’s a step in the right direction, federal regulators say it doesn’t go far enough.
The Consumer Financial Protection Bureau (CFPB) said the actions taken by the three credit reporting agencies are unlikely to help many people. In February, before the changes to credit reports took effect, the CFPB estimated that about $88 billion in medical bills appeared on 43 million credit reports.