At least 25 years ago, a friend tells us, she was out to lunch with a business acquaintance. The check came, and they figured out how much each of them owed. As they rifled through their wallets for the right combination of ones, fives and tens, the colleague mumbled, “You know, it’s just paper, but it rules our lives.”

Cash is still important, but nowadays we would argue that credit rules our lives. A credit score is just a number, but it can drive up the interest rate on a mortgage loan and put the kibosh on a new credit card. And the formula used to calculate a credit score varies from one credit company to another. All we really understand is the big picture: debt from revolving credit accounts seems to do more harm to a credit score than secured debt. Credit card balances bad; home loans not as bad.

But where do outstanding medical bills fall? Medical expenses are almost entirely out of our control, so why should our credit scores suffer? It is an issue that must be addressed, considering that more than half of all collections noted on credit reports have something to do with medical expenses.

The Consumer Financial Protection Bureau believes that credit bureaus give too much weight to medical debt. Credit scores take a tremendous hit — 10 or 20 points, according to CFPB research — when medical debt and other types of debt are treated as equals. Even in cases where medical debt is treated differently, it still stays on a credit report for seven years after the debt is settled. The scoring models must be overhauled.

We will discuss how things are beginning to change for the better in our next post.

Source: CNBC, “Credit alert! Unpaid medical bills unfairly hurt scores,” Herb Weisbaum, May 21, 2014