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Protect credit from damage from medical bills

Medical bills are a reality of life for many people in Ohio, but if they are paid on time, they may not become a recurring problem. However, a medical bill that goes into collections may wreak havoc on a credit score. A study by the Consumer Financial Protection Bureau found that medical bills tend to hurt a consumer's credit reports more than they should. The study suggests that those whose credit scores were negatively affected by unpaid medical bills paid other financial obligations in a way that was comparable to those whose credit ratings were 10 points higher. Thus, the CFPB determined that a person's failure to pay a medical bill on time did not equate to an increased likelihood of missing other payments.

Credit bureaus have taken note of the problem and are planning more nuanced means of scoring in the future. FICO has noted that its current algorithm does not take into account "small collections amounts" though it did not specify what monetary value was considered "small." FICO also stated that its new method of calculating credit scores will better reflect nuances in collections data.

However, consumers should still be wary of the ability of accounts in collection to derail credit scores. Many companies use even older FICO methods than the current one, and medical bills that remain unpaid may do serious damage to a person's score. For those with multiple bills, it is important to track them and ensure they are paid once they are sent to insurance providers. Making sure a bill gets paid on time can protect a person from an enormous amount of trouble later on.

For those who find themselves crippled by medical debt, it may be helpful to consult with a lawyer who has experience in bankruptcy law. Declaring bankruptcy is an option for some because it provides effective relief from debt in many cases.

Source: Fox Business, "Prevent Medical Bills From Bruising Credit", Liz Weston, July 18, 2014

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