We view negatively a person who files bankruptcy after running up credit cards debts to fund an extravagant lifestyle, but we are less judgmental about the unlucky person who incurs medical debt. Apparently the three major credit reporting bureaus agree and have decided to remove these debts from their credit reporting.
Forbes Magazine has a break-down of the new rules:
- Starting July 1, 2022, medical debt that’s been paid will no longer be included on credit reports from Equifax, Experian and TransUnion—even if it’s been on your report for several years.
- In addition, the three credit bureaus are increasing the amount of time before medical debt in collections appears on your credit reports. That cushion is now six months but will be lengthened to one year.
- If you’re in the process of negotiating or paying a medical debt, this can give you extra time to work with providers or collectors to find a mutually-agreeable payment solution.
- Finally, beginning in the first half of 2023, the three consumer credit reporting agencies will no longer include medical debt in collections under $500 on credit reports.
Is this a good thing?
Well, for bankruptcy attorneys this is a bad development since we pull credit reports when preparing a bankruptcy petition. We can’t list creditors we don’t know about, and clients seem overwhelmed when trying to remember all the medical creditors they owe.
There will be more unscheduled debts. That’s a bad consequence of this new practice.
The woke FICO score.
So, medical debts are no longer “debts” for the FICO score. It would be harsh and oppressive to report . . . um . . . debts. I mean, the wrong kind of debts.
Something tells me this is purely public relations. My guess is there is another report bankers are viewing to tell the about the politically incorrect debts, like medical debts. In fact, I know such reports are reviewed when bankers are deciding whether to extend credit.
For years the Credit Counseling industry has said that enrolling in a Debt Management Plan does not affect the FICO score, but I’ve heard bankers tell me that they know that people who enter these programs are several times more likely to default on a loan, so they do consider those programs as a “factor” when extending new loans.
The score ain’t the score anymore.
Debt management plans don’t reduce FICO scores, but it is a “factor.”
Medical debt is not debt.
If a credit report does not accurately report a person’s debts–if the debt-to-income ratio is not really an accurate ratio–what good is the report?
I smell a rat. Somehow, some way, those bankers still look at medical debts.
A credit score is supposed to inform us of whether you are a good credit risk. The higher the debt level, the higher the risk. More debts equate with more lawsuits and garnishments and potential loan defaults. How you acquired the debt really doesn’t matter, but apparently it does now.
What else shouldn’t be reported?
So what other debts will not be reported based on what is politically correct? Should debts incurred by single moms be reported? Should debts of ethnic minorities be reported? Should debts owed by residents of low-income neighborhoods be reported? Isn’t all reporting of debt repressive?
Image courtesy of Flicker and CafeCredit.com