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Medical bill collection accounts could ruin your credit score

By Brian Anderson
Published: Thursday, July 7th, 2011

Medical bill collection accounts could ruin your credit scoreThere are some things that could ruin your credit score and the medical bill collection accounts that are hidden inside millions of credit files are certainly one of them. Even though the bills may have been settled or paid in full years ago, this can still have an impact on your housing loan.

Although this may sound farfetched, some experts from the mortgage industry claim that these medical collection records play quite a significant role in bringing down a person’s creditworthiness. So, the otherwise creditworthy individuals are turned down and are disqualified due to the low credit scores. Hence borrowers are finding it difficult to obtain mortgages under such tough conditions and even when they manage to obtain loans they are charged a higher rate of interest, down payments, and fees.

Around 28 million Americans had been contacted by the collection agencies with regard to medical debts over a period of two years. At least 72 million citizens reportedly found it difficult to pay up the outstanding medical bills. This was found out by a study conducted by the nonprofit Commonwealth Fund.

Even botched up records by insurance companies, doctors, and hospitals can lead to unsettled medical bills which could impact the credit scores. Hence, a bipartisan group from the Congress is now sponsoring a legislation which would aim at limiting the impact of credit scores on settled or paid off medical collection accounts.

The bill would be titled the Medical Debt Responsibility Act and it would require the three credit reporting agencies such as Experian, Equifax, and TransUnion to delete the medical debts of $2,500 or less from its files within a period of 45 days after it has been settled or paid. At present, the paid off collection is allowed to remain in the records for over seven years and thereby impacting the consumer’s credit scores negatively, especially during the first two years. The bill has been co-sponsored by Reps. Heath Shuler (D- N.C.), Ralph M. Hall (R- Texas), and Don Manzullo (R- Ill).

This bit of information was also confirmed by Craig Watts, Director of Public Affairs of Fair Isaac which is the developer of the FICO scoring system. The FICO scores are widely used by financial institutions and lenders. Watts also stated that most of the time, just the mere presence of these collection accounts on a credit report was sufficient to have a negative impact on an individual’s credit score.

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