FICO to discount medical debt from credit scores - New rules will improve credit scores

[kpete]

FICO to discount medical debt from credit scores
New rules will improve credit scores, help lenders better assess risk
August 8, 2014 9:14PM ET

A move by personal credit score provider FICO to leave out or discount medical debt from its scores will boost the credit ratings of many borrowers, while helping lenders to better assess risk.

Moreover, FICO won’t consider past overdue bills borrowers have already paid, the Wall Street Journal reported Friday. The new score will be available to lenders through U.S. credit reporting agencies starting this fall, FICO said.

Lenders have become extremely wary of any blemishes on borrowers’ credit scores, following the economy-crippling sub-prime mortgage crisis of the late 2000s, where banks wrote predatory adjustable rate mortgages for years to people who were not creditworthy. As the house of cards collapsed, their interest rates shot up to levels they couldn’t pay.

With FICO’s new rules, negotiated between lending groups and the U.S. Consumer Financial Protection Bureau (CFPB), that era of tight lending practices could be coming to an end — increasing the chances that borrowers will get their loan applications approved or pay lower interest rates.


the rest:
http://america.aljazeera.com/articles/2014/8/8/credit-score-fico.html

[oldandhappy]

1. so, medical debt is not real?

????????

[FreakinDJ]

3. At least not in perspective of "Billing Charges vs: Actual Cost"

[enough]

2. So now you can borrow more, while keeping your medical debt?

Lets hope this is the first step toward medical-debt jubilee, but somehow I doubt it.

[oldhippie]

4. It seems that it will just ....

... enable and encourage people to go deeper in debt. I suppose that is probably the point.

I don't think this is a good idea.

[CreekDog]

6. what are you complaining about? are you confused?

you seem to be the last one to realize it.

[oldhippie]

7. Yes, I am confused ....

WTF are you talking about? Was that post supposed to be coherent?

Last one to realize what?

[Dreamer Tatum]

10. So you are in favor of old medical debt dogging you for life.

Because that way, you won't borrow as much?

Hey, want to stop smoking? Let me cut your hands off.

[oldhippie]

11. yes, .....

If you have old medical debt you should not borrow much more money. Medical debt should be no different than any other debt. Debt should negatively affect your credit rating. Was I clear enough that time?

[Dreamer Tatum]

12. You're clear, I just think you're in the minority here. nt

[oldhippie]

13. Yes, I am ......

I actually know a little bit about economics.

[Lars39]

17. Except that credit rating has been used to deny people employment.

[oldhippie]

19. True ....

... but doesn't change anything said. Not liking an outcome doesn't negate a process.

[Lars39]

20. Have you ever been tens of thousands of dollars in debt for medical procedures?

[oldhippie]

24. No, and ....

... I won't ever be.

Neither has anyone else I know.

[Lars39]

32. I have. 3 major disgnoses spanning 2 years

did it. Might I suggest your experience is limited in this area.

[oldhippie]

33. My experience with illnesses ...

... and the debt incurred thereby has no bearing on my opinions about debt and influence on the credit score.

[Lars39]

35. Oh, you'd have quite a different outlook if you'd ever had massive medical debt.

[oldhippie]

37. (sigh)

Now you are telling me how I think.

I think we are done.

[QED]

14. Are you conflating medical debt with credit card debt?

Medical debt is a necessity while credit card debt can be a matter of choice. A hospitalization amounting to thousands of dollars in debt can truly haunt a person. It can be more than a mortgage. Sometimes the best a person can do, aside from bankruptcy, is whittle away at the medical debt a little at a time. This drastically skews a person's debt to available credit ratio thus lowering a score.

Credit card debt, while sometimes also necessary to make ends meet or deal with life's emergencies, is a different animal largely under a person's control.

These two types of debt should not be treated the same way.

[oldhippie]

15. Debt is debt ...

Debt is debt. It doesn't matter if it is "righteous" debt or bad debt. Whether it was voluntary or not. Previous debt must affect your credit rating and ability to borrow and pay back additional debt. Current debt SHOULD lower your credit score. To believe otherwise may be compassionate but irrational.

[jeff47]

16. Not when you're calculating a score

The goal of a FICO score is to get an estimate of how reliable a particular borrower is.

When it's credit card debt, the borrower is deciding to spend it. Thus that debt is an excellent measure of the borrower's reliability.

When it's medical debt, they are being forced to spend it due to circumstances. Thus it isn't a very good measure of reliability - the borrower didn't decide to borrow, they were forced to borrow due to circumstances.

[oldhippie]

18. If that's the way you feel ....

... then that's OK. I am not trying to change your mind. All I did was voice my opinion. You can also have yours.

[demwing]

22. It's simple

CC debt implies bad borrowing choices, which is an appropriate measure of credit worthiness.

Medical debt does not.

[oldhippie]

25. No, it's not that simple ...

Existing debt of any kind makes it harder and more risky to pay back any further debt.

[demwing]

34. So do you think this is a good move?

or would you--if you had the say so--reverse the policy?

[oldhippie]

36. See my post #4

I don't think this was a good idea.

[SoCalDem]

28. According to an "expert" on Ali Velshi's show

most mortgage lenders will not be following the new guidelines for at least a few years..

credit card companies & car dealers will likely be the ones to jump on the new changes first.

[Dreamer Tatum]

5. PSA for the ignorant and for the bad readers: this is a GOOD thing.

It means that medical debt won't be held against you for the purposes of credit decisions.

Honestly, I don't know what compels people to whine about good things.

[Hoyt]

27. Unless lenders increase the score they consider acceptable.

I doubt they are going to ignore medical debt that could put a lender into bankruptcy when a hospital gets a court judgement.

[woo me with science]

8. So, this seems to be an acknowledgement that our health insurance system is corrupt and predatory.

We can then assume that this is just a stopgap measure, right? We can assume that there will be a sustained, public push to replace the corrupt system with something non-predatory?

[Dreamer Tatum]

9. No, it means that credit decisions won't weigh medical debt.

It really is a simple concept.

[ProdigalJunkMail]

21. given the fact that if you have to pay for your own healthcare

that a simple aspirin can cost $80 in a hospital i think this is a valid move. it is extortion to charge a 10000% markup on an item just because you have them as a captive audience... prisoner... well, you pick.

sP

[CrispyQ]

23. People don't have any credit & they don't want to raise our wages, so this is perfect for the 1%.

Get the proles in even more debt.

on edit: We need jobs that pay better wages, not an easier time getting loans.

[woo me with science]

29. Thank you.

Everything to perpetuate the looting, nothing to address the actual problem of looting, hoarding, and low wages.

[ForgoTheConsequence]

26. The whole idea of "credit scores" is a scam.

It should be outlawed.

[woo me with science]

30. +1 In the predatory, corrupt system now being blatantly protected by our politicians,

Last edited Sat Aug 9, 2014, 06:22 PM - Edit history (1)

that is exactly correct. Thank goodness there has been some pushback, and some states have begun to outlaw the use of credit scores for things like employment and housing.

[Dreamer Tatum]

31. no it's not and no it shouldn't nt

[ForgoTheConsequence]

38. Do you work for Experian?

Please give me a defense of these credit agencies other than "No". Do you know how hard it is to remove faulty credit score information? Your financial credibility is held hostage by these corrupt corporations. If I choose to only spend what I have and not rely on credit or borrowed money from corrupt banks I'm punished. It's a scam and unless you're some Ayn Randian libertarian nut, there is no defense.

[winstars]

39. Jeeze, its just someones opinion... Maybe Dreamer Tatum does? But, maybe decaf...

[ForgoTheConsequence]

40. Nah, our broken financial system is too important.

And anyone who defends the fucked up way our system preys on the poor owes an explanation other than "nuh uh".

[winstars]

42. OK nt.

[Dreamer Tatum]

41. No, but I know what I'm talking about, and you don't.

First of all, the discussion was about FICO and their use of information. Your argument appears to be with banks, not FICO.
And Experian, Trans Union, and Equifax are reporting agencies. They're not FICO. They license FICO. FICO is a score that uses
credit information and credit history. It has proven reliable in distinguishing good credit risks from bad. That's all. If you have a
complaint with how it's used, first go learn what the hell it is you think you're talking about, and second, go picket a bank.

FICO, you see, is SCIENCE. Is it exact? No, because banks report to credit agencies, and FICO uses credit data. I don't expect this to impress you at all, since it's clear you cannot distinguish a bank from a credit reporting agency from a credit scoring agency.

[roamer65]

43. Yet another argument for national, single payor health insurance

No one should have medical bills in this country...no one.