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Credit scores unfairly punish consumers who don’t pay their medical bills right away, according to a study just released by the Consumer Financial Protection Bureau. What’s more, scores for consumers with unpaid or late medical bills inaccurately predict the creditworthiness of those consumers, the study suggests.

Consumers who are late paying medical bills should be given credit scores that are 10-20 points higher than scores they are given, the agency said, potentially costing the consumers thousands of dollars in borrowing costs during their lifetime.

The CFPB study looked at 5 million credit reports and scores from 2011-2013, and the payment histories of those consumers. It found that patients with unpaid medical bills pay other bills at a rate in line with consumers whose credit scores are 10 points higher.  Those who do pay medical bills, but paid them late, are dinged up to 22 points, the CFPB found.

Many credit scoring models do not differentiate between unpaid medical bills and other kinds of unpaid bills, such as cellphone bills or past-due rent that wind up in collections. They often fail to differentiate between collections that get paid and those that do. (The most recent version of VantageScore does make that distinction.)

Too Big of a Penalty?

“Getting sick or injured can put all sorts of burdens on a family, including unexpected medical costs. Those costs should not be compounded by overly penalizing a consumer’s credit score,” said CFPB Director Richard Cordray. “Given the role that credit scores play in consumers’ lives, it’s important that they predict the creditworthiness of a consumer as precisely as possible.”

A spokesperson for the CFPB said they are not commenting on which scoring model was used for the study.

The study examined consumers who had mostly medical bill-related events in their credit history against consumers who had very few. Consumers with equal amounts of medical and non-medical bills were excluded.

The study builds on previous research published by the Federal Reserve saying that half of all negative payment events on credit reports are related to medical debts.  That research also raised this troubling issue: Many consumers are unaware that they have unpaid medical bills in their credit file. Still others end up with unpaid bills in collections because of billing or other paperwork errors.

The report recommends that medical bills be treated differently by the credit reporting industry than other kinds of late or unpaid bills.

“For consumers with lower credit scores, especially those on the brink of what is considered subprime, a ten- to 22-point difference can affect their interest rates and ability to borrow credit,” the report found.

At least one credit scoring model is changing the way it treats medical collection accounts.

FICO Score 9, which will launch later this year, continues to adapt to the changing credit landscape by using a more nuanced approach to assessing consumer collection data,” said FICO spokesman Anthony Sprauve via email. “As part of this refined credit assessment, medical collections will have a smaller impact than non-medical collections.”

If you want to see if a medical bill is impacting your credit, you should check your credit reports, which you can get for free once a year. You can also check two of your credit scores for free every month on Credit.com to get a clear picture of the impact these bills are having on your scores.

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