VantageScore will reportedly drop medical debt from credit score consideration

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The company says medical debt is not a good indicator of creditworthiness

VantageScore, a provider of credit scores to lenders, has reportedly decided to drop medical debt from its calculations – a move that could raise many consumers’ credit scores.

The Wall Street Journal reports that the company’s move goes farther than those recently announced by Equifax, Experian, and Transunion – the three credit reporting agencies that jointly own VantageScore.

In March, the three credit reporting agencies announced that medical debt turned over to collections but later repaid will be removed from a consumer's credit report. Under current practices, it remains as part of a consumer's credit history.

The Journal reports that VantageScore is taking it a step further. The company will remove all medical collections from the data used to determine a credit score. Company executives told the Journal that it has found medical debts are not a good indicator of how consumers handle other debts.

Medical debt often can’t be avoided

According to the Kaiser Family Foundation, two-thirds of medical debts are the result of a one-time or short-term medical expense arising from an emergency or sudden medical need. After two years of the COVID-19 pandemic and a detailed review of the prevalence of medical collection debt on credit reports, all of the credit reporting agencies are now changing the way they view medical debt.

“Especially given the impact that Covid-19 had on consumers, having medical debt isn’t necessarily reflective of someone’s ability to pay back a loan,” VantageScore CEO Silvio Tavares told the news outlet.

VantageScore’s action expands on moves by its parent companies. In July, Equifax, Experian, and TransUnion began deleting information about medical bills sent to collections if the bills had later been paid. The three firms also put off including new unpaid medical debts to credit reports for a full year after being sent to collections. Previously, there was a six-month waiting period. 

Starting next year, the three credit reporting agencies said they would remove unpaid medical debt if it is less than $500. While it’s a step in the right direction, federal regulators say it doesn’t go far enough.

The Consumer Financial Protection Bureau (CFPB) said the steps taken by the three credit reporting agencies probably won’t help that many people. In February, before the credit reporting changes took effect, the CFPB estimated that about $88 billion in medical bills were listed on 43 million credit reports.  

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