If you've fallen behind on medical bills and are beginning to receive collection notices, you may be wondering what your next steps should be, and how you can preserve your credit rating. You're not alone -- nearly one in five Americans have at least one medical collection reported on their credit report. However, there may be a light at the end of the tunnel. Read on to learn more about how some changes in the credit scoring process may lessen the impact of medical debts on your credit.
How have medical debts traditionally impacted your credit score?
Your credit score is based on a variety of factors, and can vary by reporting agency. In general, if you have positive credit habits (such as a good mix of revolving and installment accounts and a low total debt utilization) your credit score can withstand a few minor blips, such as a late payment or spending spree. Once you regain your positive habits, your score will quickly recover.
However, once a debt has been charged off by the original lender and sold to a collection agency, your score may begin to plummet. Many consumers have seen scores drop by up to 100 points as soon as the debt is reported. In general, the higher your previous credit score, the harder your fall. Unless this transaction is disputed and removed from your credit report, it has the potential to cause long-term harm to your credit score and ability to purchase a house, take out an auto loan, or go back to school.
What do the recent FICO changes mean for this process?
Fortunately, there is some relief on the horizon for individuals who have otherwise good credit habits -- just high medical debt. FICO recently announced a change to its credit scoring process that will help separate medical debt from other types of consumer debt when computing your credit score. This change can help significantly lessen the impact of a medical collection on your total credit score.
If you've previously paid your bills on time and your medical collection is the only negative on your credit report, it's unlikely that your score would have dropped by the full 100 points estimated. Adding in the changes in FICO calculations, which recover a median of 25 points, you might see only a more minor drop of 50 to 75 points. And if your total amount of medical debt owed is relatively small, this debt may indeed become one of the recoverable blips on your credit report, rather than a life event that must be overcome.
For more information about credit policies and medical collections, you may want to talk to a collection agency, like Alacrity Collections Corporation.
Share18 February 2015
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