Care Concern: Medical Debts to Lose Dominance Over Your Credit Score
Doctors are there to make you healthier. Isn’t it the motive behind consulting a physician? Think again. Lets make it easier for you, ‘what would you do when the hospital bill comes?’ Have you got a plan B to deal with a financial catastrophe should it strike you all of a sudden. Probably not, and if you belong to that one-third of the American population, then it is very likely for you to struggle in paying off your medical bills.
Medical Debt: A Vicious Cycle That Harms Your Credit Life
Medical bills are the single most driving factor that turn people bankrupt. It is the number one reason for people to file for bankruptcy protection, having less to do with their reckless spending behavior and more to do with the misfortunes that materialize in the form of overwhelming health care costs.
The collateral damage of medical debt doesn’t limit itself to just breaking your bank, but it’d also wreak havoc on your creditworthiness, i.e. your credit score. As a result of a poor score, you’d be unable to get fresh lines of credit at an affordable rate of interests. In turn, this would affect other parts of your life, thus the vicious cycle continues.
There are more than 64 million people surviving with medical debts in collection mentioned on their credit report, as per Experian, one of the leading credit bureaus in the country. However, a recent modification in the credit scoring rules would go a long in ensuring a fair credit score calculated to provide consumers with much better financial alternatives.
Health Care Cost Inflation: The Proliferator of Bankrupt People
Even health insurance coverage proved ineffective to protect people from insolvency. Here, a NerdWallet’s study suggests that 10 million people with health insurance policies felt the heat when they were asked to make the payments. Adding fuel to the fire is the rise in high deductible health insurance plans, which experts believe would do little but aggravate the financial crisis of the common man further.
Interestingly enough, people buying Affordable Care Act plans had to shell out $6,350 as of 2014, even though the same were bought from a government marketplace. Add to that the monthly premium costs and you’ll have a coverage that is very likely to be highly expensive for far too many people.
Having faced with steep health care costs, people turn to credit to get rid of their medical debt. This is why it has been found that 11 million people use credit cards to pay for their hospital/medical costs each year.
Fico and Your Medical Debt: A New Chapter Begins
A couple of weeks back, Fair Isaac Corp (FICO) - the most popular credit score used by all has vowed to minimize the effect of medical debt on their credit scoring model. This could be of great relief to the financially deprived individuals. The reason is that a change of this kind in its calculation procedure will help FICO to boost its consumers’ credit score. This is considered to especially benefit consumers with good credit history but are suffering only because of medical debt. Hence, this new rule will add 25 more points to their credit scores.
The bottomline is, past medical debt would play no role in deciding new credit scores of the consumers. FICO will now have to segregate all the debts into either medical debt or non-medical debt, thereby sending a strong message to the credit world that a $300 emergency medical bill is different as compared to splurging on unnecessary items through credit cards.
Better Financial Literacy, Stronger Consumer, Financially
An environment such as this warrant consumers to be strong and proactive when it comes to their understanding as well as commitment toward their health care expenses and obligations. However, our primary goal should be to enhance consumer empowerment and that can only be achieved through greater financial literacy in managing one’s health care costs. In other words you, the consumer, must be aware of how you can approach paying off your medical bills in the shortest time possible.
Unfortunately, the current socio-economic scenario are indicative of lots of hard days to come before we could accomplish our goal. The ground scenario is so pathetic that a latest market survey by Kaiser discovered how poorly informed our consumers are and that a lot of them were ignorant of some of the most fundamental health insurance terms like deductible.
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