According to a recent report, 20% of people with credit records or 43 million people, have unpaid medical debts, according to the Consumer Financial Protection Bureau.
Americans have fallen ill and ended up in the hospital with unanticipated bills. Patients may be confused by the notices they get from the hospitals and insurance companies about the cost of treatment. As a consequence, millions of Americans are surprised to be stuck with lower credit scores, making it harder to purchase a vehicle or home. Typically, a person with only overdue medical debt owes approximately $1,766. Someone with unpaid medical bills and other sources of debt owes an average of $5,638. More than half of all debt on credit reports stems from medical expenses.
Half of consumers who only carry medical debt have no other signs of being under financial anguish. But complaints to the CFPB indicate that consumers are baffled by medical bills. Insurance and hospital statements leave them unsure as to how much money they owe, the deadline for payment, and which organization should be paid.
This misunderstanding tends to generate disputes from consumers about the unpaid debts. This has prompted the CFPB to require major consumer reporting agencies to provide regular reports on how they investigate and respond to disputed charges.
The unpaid medical bills have a negative consequence for credit scores, which help determine how much money people can borrow and the interest rates for mortgages and auto loans. An unpaid bill of at least $100 could lower an otherwise sterling credit score of 780 by over 100 points; the Fair Isaac Corp. told the CFPB.
Fair Isaac Corp updated its credit score model in August, which now puts less weight on unpaid medical bills when predicting the likelihood of a payment. Consumers with only medical expenses in collection would see their credit score increase by a norm of 25 points once the new model is fully implemented.
The Urban Institute study found that the share of Americans with debt in collections has remained relatively steady, despite the country as a whole shaping down the size of its credit card and other debts since the Great Recession ended in the middle of 2009. Americans have no choice but to take on debts they have a small chance of ever repaying.
Author: Blaine Pollock