We have been talking about credit scores and the inconsistencies in how credit bureaus calculate the scores. Consumer advocates, including the Consumer Financial Protection Bureau, have begun to zero in on the role medical debt plays in credit scores. Medical bills, they argue (and consumers agree) are not the same as revolving, unsecured credit, but nor are they the same as secured credit. If you fall behind on payments, the hospital cannot put a lien on your newborn the way a mortgage lender can put a lien on your house.

Unfortunately, the CFPB cannot change how credit bureaus work on its own. What it can do is present enough evidence to Congress to convince both houses to act. One bill that could help is the Medical Debt Responsibility Act. Under the act, paid or settled medical debt would be wiped from a consumer’s credit report within 45 days.

Some companies, too, have already taken the hint. For example, later this year FICO will introduce its FICO Score 9, a model that will reduce the impact of medical debt on an overall credit score. FICO was the first company to come up with the algorithms that calculate credit scores. Another score, one relatively new to the marketplace, does not count collection accounts — and that includes medical bills — for the simple reason that they are already paid or settled.

These companies are not acting solely out of concern for the welfare of the consumer, of course. As the individual components of a credit score gain more scrutiny from the CFPB and consumer watchdogs, the value of the scores themselves comes into question. To maintain the credit score’s integrity, credit bureaus must make real-life adjustments to the algorithms.

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