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The impact of medical bills on credit scores

New Hampshire readers may be surprised to learn that medical bills are currently the leading reason for personal bankruptcy filings. Surveys have found that approximately one in three Americans are struggling to cope with doctor or hospital bills, and this can have a significant impact on their credit scores. The credit reporting agency Experian says that 64 million Americans may have difficulty borrowing due to medical collection accounts on their credit reports.

The consequences of this kind of negative item on an individual's credit score may soon be less severe, however: Fair Isaac Corp. announced in early August that it is making changes to the algorithm used to produce its FICO scores. This change will lower the impact of a medical collection account. The company says that the change will see credit scores rise by an average of 25 points for those in this situation. The company also says that such collection accounts will be removed from an individual's credit report completely once they are paid off.

The move comes after research found that many people with unpaid medical bills had otherwise good payment histories and that these negative items were having a disproportionately severe impact on FICO scores. However, other studies have found that the absence of a medical collection account does not mean that people are not struggling with hospital and doctor bills; a report published in April 2013 by the Commonwealth Fund revealed that medical bills had exhausted the savings of 28 million Americans in 2011 and 2012.

Many individuals and families struggle to meet their monthly financial obligations, and an unexpected illness or accident can quickly lead to severe hardship. An attorney with experience in bankruptcy law could explain the benefits and drawbacks of the various debt relief options available. The attorney may also suggest strategies that put an end to creditor harassment and provide an opportunity for a financial fresh start.

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

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