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New FICO rules may not help everyone

New changes in the way FICO scores are computed could mean that some New Jersey residents will see an increase in their credit scores. With the new formula, outstanding medical debts will make less of an impact on scores and paid medical collection accounts will not be factored in at all. According to FICO’s director of public relations, the existence of medical debt is not a reliable indicator of whether a person is a good credit risk.

Though the changes are designed to prevent an unnecessary denial of credit based on medical debt, they may not help everyone with a substantial amount of bills from medical services. Among the people who will not get the benefit of the changes are those who used their credit cards to pay their medical bills. FICO does not have a way to determine whether the charges are from a vacation or to pay the deductible for a necessary medical procedure.

Many health insurance plans have deductibles and co-insurance costs that could leave a person who develops a serious illness with significant medical debt. With medical expenses the leading cause of personal bankruptcy, it is important for everyone to know the specifics of their policy’s benefits before they need to use them.

Anyone who has maxed out their credit cards or has been overwhelmed while trying to pay their doctor or hospital bills may benefit from a consultation with a bankruptcy lawyer. The lawyer may explain their options and help them formulate a plan to resolve the debt. In many cases, bankruptcy is the best option to reduce debt and allow a person to start over without enormous bills hanging over them. Through Chapter 7 or Chapter 13 bankruptcy, a client may be able to eliminate their debt legally.

Source: Forbes, “Medical Debts Will Soon Weigh Less On Your Credit Score, But They’re Still A Problem“, Christina LaMontagne, August 26, 2014

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