FICO, the company that developed the original algorithm credit agencies use to calculate credit scores, recently made an announcement regarding certain collection accounts. One of the main factors when calculating the three digit number is payment history. In fact, how someone pays their creditors accounts for 35 percent of the total score. If someone pays a credit card account more than 30 days past the due date, a credit score will be harmed. If a payment is made more than 60 then 90 days past the official due date, scores will fall further still. Finally, if a creditor finally gives up trying to get a borrower to pay up, the account is closed then sent off to a collection agency.
Perhaps one of the most common of all collection accounts are those resulting from medical bills. If you’ve ever been rushed to a hospital as a result of an illness or injury, you know what I’m talking about. So many different parties bill the insurance company for various procedures in language only a very few can even understand. A hospital sends a statement to a former patient while at the same time sending a bill to the insurance company. If the insurance company doesn’t pay the full amount, another statement arrives requesting the balance be paid. Many times consumers think the account has been settled or was previously taken care of by the insurance company. It’s a very, very confusing process and medical collection accounts are not that rare.
A collection account of any sort will hurt a credit score, regardless of the source. Many years ago before credit scoring became the norm, mortgage companies would tend to ignore medical collection accounts. Yet credit scores today certainly consider them and treat all collection accounts the very same, driving down scores.
Yet FICO’s recent changes will separate medical collection accounts from any others and essentially ignore them. Medical collection accounts in the very near future won’t harm a credit score and it’s simply a matter of Fannie Mae and Freddie Mac adapting to the new scoring system. If you or someone you know are being held back because of medical collection accounts, good news is on the way.