VantageScore Excluding Medical Bills from Credit Scores

On Tuesday, VantageScore Solutions LLC said it would stop including medical bills that were sent to collections in its credit scoring model, according to a Wall Street Journal report.

The VantageScore, which was created as a joint venture between the major credit reporting agencies, is not used as widely as the FICO score, but this decision is based on recent changes from the credit bureaus and may cause more positive changes down the road.

Key points to remember

  • The VantageScore credit score model will soon no longer consider unpaid medical collections when calculating scores.
  • The decision follows changes made by the credit bureaus to reduce the impact of medical collections on consumers’ credit records.
  • The credit reporting company cites that collected medical bills have little predictive value when it comes to a consumer’s creditworthiness.
  • The company says millions of consumers could see an increase of up to 20 points in their VantageScore credit scores.

VantageScore Takes the Next Industry Milestone in Medical Debt Processing

Despite extensive health insurance coverage in the United States — more than 90% of the population has some form of health insurance — about 9% of Americans have medical debt, according to a recent analysis by the Kaiser Family Foundation.

Of the 23 million people in question, three million have more than $10,000 in unpaid medical bills, and black adults, people with poor health and people with disabilities are disproportionately affected.

But unpaid medical bills aren’t a good predictor of whether or not someone will pay their debts, VantageScore Solutions LLC explains, which is what credit scores are designed to do. As a result, competitor FICO has decided to stop considering unpaid medical collections in its latest credit score releases from October this year.

The decision did not fall from the sky, however. VantageScore began reducing the impact of medical bills on some of its credit scoring models several years ago.

And in March, the three national credit bureaus, which created the VantageScore as a joint venture, announcement that they would remove all paid medical collections 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 problem ? VantageScore indicates that millions of consumers could see an increase in their credit score of up to 20 points and that more than 2,600 lenders and other financial institutions use its credit score. However, its competitor, the FICO score, remains the most widely used score in loan decisions. So while this is a positive change, it may not have much of a direct impact on consumers, at least not immediately.

However, it keeps the ball rolling on the credit reporting industry’s initiative to manage medical bills more appropriately. For example, the most recent FICO scoring model excludes paid medical accounts and other collection accounts, and following VantageScore’s decision to remove medical collections entirely, FICO could be next.

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