Question of the Day: What Type of Debt Has the Largest Negative Impact on Credit Scores?
As the graphic below shows, it is medical debt by a long-shot (responsible for 52% of overdue debt that shows up on credit reports):
Other interesting factoids from Washington Post story:
- 1 in 5 credit reports have medical debt outstanding: “Some 43 million Americans have delinquent medical debt on their credit reports, amounting to about one in five credit reports, according to a report released Thursday by the Consumer Financial Protection Bureau.”
- FICO recently adjusted their methodology to reduce the impact of medical debt: “In the fall, the Fair Isaac Corporation (FICO) started using a new scoring model that changes the way medical debt is weighted and no longer factors in overdue payments that have since been made.”
- On a relative basis, the size of the medical debts tend to be lesser than other forms of debt: “The medical bills that are sent to collections and drag down credit scores are often minor, when compared to other debts. The average medical bill sent to collections was $579, compared to an average of $5,587 for auto loans.”
- Note that the third item on the chart above is cable or cell phone bills which are services your students likely use so remind them to pay their bills on time!
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.