On Keeping Medical Bills From Hurting Your Credit Score

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Paying your medical bills is becoming more complicated, particularly as more patients become responsible for a greater share of their medical costs. And often, hospitals and other providers are turning over bills more quickly to collection agencies.

The problem, as my article on Saturday outlines, is that medical bills can be riddled with errors. Or, it may just take you many months and phone calls to figure out how much you’re really obligated to pay, or why your insurer is dragging its feet. But if you take too long to untangle the mess, it could end up hurting your credit score. If a medical provider hires a collection agency to collect the money on its behalf, credit experts said there’s nothing stopping them from reporting the delinquency to the big credit reporting bureaus. Debt collection experts said that it was ultimately up to the medical provider to determine when the debt got reported.

A consumer has 30 days to dispute the debt (from the time the debt collector initially reaches out to them) with the collector. And if the consumer disputes the cost, the collector is supposed to “cease collection of the debt” until the collector can verify the debt with, say, a copy of a judgment. “That would seem to include notice to the credit bureaus,” said Robert J. Hobbs, deputy director at the National Consumer Law Center and author of “Fair Debt Collection” (National Consumer Law Center, 1987). But “it’s a gray area of whether that is actually a collection effort.”

The Consumer Data Industry Association, a trade group for the big credit bureaus, said that consumers could also request to have the debt deleted from their credit report if the debt was invalid. But as we’ve reported before, disputing errors is not always an easy process.

“You’ve got this mishmash of consumer protection laws that might provide some protection, but aren’t specifically designed to protect consumers against medical billing problems,” said Gerri Detweiler, a credit expert with Credit.com. “We’ve given collection agencies a lot of power to harm consumers’ credit reports due to medical problems, without proper checks and balances.”

The article also discusses legislation that would erase medical debt from credit reports within 45 days of being settled or paid. Supporters of the bill said it would help people whose credit scores were unfairly damaged, while critics argued that it would undermine the value of credit reports because it does not distinguish between people who were truly delinquent and those who were the victims of billing errors or other mistakes.

Has your credit score been damaged by medical bills? What do you think of the legislation? Please share your experience in the comment section below.

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Mortgages - How to Pump Up Your Credit Score

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A majority of banks are less likely to offer loans to people with a FICO credit score of 620 and a 10 percent down payment than they were in 2006, according to the report. Lenders were also less likely to do so even for those with a score of 720.

Such stricter standards have drawn the attention of Ben S. Bernanke, the chairman of the Federal Reserve, who last week told a bankers group that “current standards may be limiting or preventing lending to many creditworthy borrowers.”

For those with lower credit scores, the math is stark: A borrower with a credit score of 720 can expect a rate of 3.70 percent on a 30-year, $300,000 fixed-rate mortgage, according to myfico.com, while someone with a score of 620 to 639 can expect a 5.07 percent rate — or an extra $242 per monthly payment.

“If you don’t have good credit, you’re not going to get that crazy low rate,” said Deborah MacKenzie, the director of counseling at the Housing Development Fund, a nonprofit group in Stamford, Conn. But she and other experts said there were tactics that consumers could use to raise their scores.

First, though, it is worth noting that median credit scores are rising, as people reduce debt and spend less in tight economic times, said Joanne Gaskin, the director of product management and global scoring at FICO, the provider of one of the most popular credit scores used by lenders. Some 18 percent of Americans now have scores of 800 to 850, while 15 percent are below 550, according to FICO data. Through “good behavior,” Ms. Gaskin said, you could raise your credit score by as much as 100 points in a year.

Often lenders will review your scores from the three big credit agencies, and they use the middle number to evaluate you. “That becomes your risk number,” said Tracy Becker, the founder of North Shore Advisory in Tarrytown, N.Y., a national credit score specialist.

Start by obtaining your three credit reports (available free once a year at AnnualCreditReport.com, or call 1-877-322-8228), and study them carefully for errors or omissions. If you think your score labels you as a higher risk, Ms. MacKenzie suggests signing up for a first-time homeowners class through a counseling agency certified by the federal Department of Housing and Urban Development.

According to FICO, the two biggest factors in your credit score are your payment history, which accounts for 35 percent of the score, and the amounts owed, accounting for 30 percent.

Knowing that, Ms. Gaskin said, an effective way to raise your score is to reduce your balances on credit cards. She notes, however, that if an account is in collection, it is too late to improve your credit score by paying it off. The notation that an account is in collection is what lowers the score, she said, so consumers may get more mileage by paying down active credit-card balances and other debts first.

Though mistakes and bankruptcies may stay on your credit report for seven years, lenders will generally be more likely to overlook late payments that happened two or more years ago than more recent ones, Ms. MacKenzie said. “A late payment that occurs this month when you’re applying for a mortgage is deadly,” she said.

Another way to bolster your credit is by asking creditors with whom you have a good track record to report to a credit agency, Ms. Gaskin said. That could include a landlord or a utility.

Improving your credit could take three to four months, or it could take as long as 18 months. “It isn’t an easy fix,” said Carol Yopp, a program manager for the Long Island Housing Partnership and a former mortgage underwriter. “Don’t expect it to happen overnight.”

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Is That Credit Score a FICO, or a FICO 8?

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It’s difficult enough already to grasp the nuances of consumer credit scoring. So it doesn’t help when industry players are fuzzy about just which score they’re talking about.

Last week, I wrote about a report from FICO, creator of the most widely used credit score. The report, which analyzed data from the credit reporting bureau Equifax, showed an increase in the proportion of people in the top tier of credit scores, and a decrease in the lowest tier. (FICO scores run from 300 to 850; the higher the score, the better your credit. Your actual number may vary, depending on which of the credit reporting bureaus — like Equifax or TransUnion — provides the credit information for calculation by FICO’s formula.)

What FICO failed to note was that the analysis was not based on the version of the FICO score that most lenders still use to rank a potential borrower’s creditworthiness. Rather, the FICO analysis used the newest version of the score, called FICO 8. (Thanks to an alert reader for bringing that to my attention.)

When I followed up with FICO, Rachel Bell of FICO Labs, the company’s research arm, said it did not matter that the report used FICO 8. Individual credit scores might differ under the latest formula, she said, but the trend would be the same, even if an older scoring model were used. Fair enough.

But I would argue that for the sake of clarity, the company should have specified the version of the score on which it based the report, because there is so much confusion among consumers about credit scores, and also because consumers generally do not have access yet to their FICO 8 scores.

Some background: According to FICO’s consumer Web site, FICO 8 was introduced in 2009, and is based on a formula that has been revised to better predict borrower risk. For instance, FICO 8 scores are “more forgiving” of rare late payments, and give more weight to highly used credit cards — those with balances near their limits. “The goal and the methodology for FICO 8 is doing a better job of identifying risk,” Ms. Bell said.

Nearly half of consumers, the Web site says, have FICO 8 scores within 20 points of their scores under the previous version. Ms. Bell said that because the updated formula is more sensitive to predicting credit risk, people with good credit habits would probably see their scores go up a bit with FICO 8, while people who are riskier might see theirs go down.

FICO says more than 7,600 creditors are now using FICO 8. Lenders that have adopted it include Citi Cards, the credit card unit of Citibank, according to FICO. “Our approach is to get lenders using the most current version available as soon as possible,” Ms. Bell said. But that typically takes time.

The company would not disclose the number or proportion of lenders using older FICO scoring models. In an e-mailed statement, a company spokesman, Craig Watts, said FICO 8 “is the fifth generation of our classic FICO scoring model, first introduced in 1989.” He said that lenders’ adoption of FICO 8 has been faster than their adoption of scores from any of the preceding scoring models.  “We’ve found over the years that some lenders convert quickly, some lenders never choose to leave their current scoring version for a newer updated one and most lenders fall somewhere in between,” the e-mail said.

Still, FICO 8 isn’t yet the most widely used version. That is why, currently, consumers cannot buy access to their FICO 8 scores on the company’s consumer site, myfico.com.  Ms. Bell said myfico.com was intended to offer consumers access to the scores that are most used — so until FICO 8 is more broadly adopted, the scores available for purchase by the public are based on the older formula.

“We’re getting close to that switch,” Ms. Bell said. “There will be a point where we use FICO 8.”

Have you checked your FICO score lately? How do you think your FICO 8 score would compare, and would you like to have access to your FICO 8 score now?

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