WASHINGTON May 20 Credit scores used to
determine whether borrowers can take out loans may overly
penalize people with medical debt, the U.S. government's
consumer watchdog agency said on Tuesday.
Credit reporting agencies calculate consumers' credit scores
in an effort to predict whether they are likely to pay back
loans. Businesses use the scores to decide whether to extend
loans and how much to charge borrowers for them.
The U.S. Consumer Financial Protection Bureau said models
for calculating the scores appear to underestimate the
creditworthiness of consumers who have medical debt outstanding,
and even those who have paid off such debt.
That is because consumers wind up with medical debt in
different ways than they incur other types of debt, such as home
loans, for which borrowers typically know the costs involved,
the consumer bureau's director, Richard Cordray, said.
For instance, sometimes insurance companies do not cover the
entire cost of medical procedures, but consumers may not realize
they owe money until they are contacted by a debt collector.
Even if they pay it off, their credit scores could take a hit.
"Having a medical debt in collections is less relevant to a
consumer's creditworthiness than having an unpaid cell phone
bill or overdue rent," Cordray said. "Scores could be more
predictive if they treat medical debt and non-medical debt
The consumer bureau, which was created by the 2010
Dodd-Frank law, oversees large credit reporting agencies. Bureau
officials said they do not plan rules on the subject but that
firms could adjust their models to treat medical debt
differently from other debt.
(Reporting by Emily Stephenson; Editing by Tom Brown)