Credit Scores and Your Hospital Stay
Hospitals have long struggled with handling delinquent medical bills of their patients. In recent years the business of identifying potentially risky customers in advance of rendering medical services has picked up steam. Credit scores have been used by lenders, landlords and insurers to evaluate consumer’s financial risk. Now the business of handling and managing medical bills has moved into the arena of credit scores and credit profiles.
The medical credit score is intended to be similar to the credit score that lenders review when determining the risk level of a consumer that apples for credit. The concept of the mortgage lender or credit card company that looks at a credit report to determine a loan or credit card approval is moving to a hospital or other healthcare provider who will review a medical credit score to determine how likely a patient is to repay their medical bill on time.
From the hospital or medial service provider’s point of view, this is a tool for more efficient hospital billing and collections. But most patients that hear of this practice are surprised to learn that they’re being subjected to any form of credit or financial analysis. Even more importantly, some groups and patients are questioning whether this will develop further and patients may be denied care if their credit score is too low.
Another clear concern is the amount of errors in existing credit reports. Credit scores can be complicated and sometimes hard to fix and the likelihood that these problems will happen with medical credit scores and create more problems in the health care sector is a grave concern.
Credit scoring models in the health care industry have the potential to be a very large business, with the large rate of unpaid bills. Medical credit scores or health care score were initially designed for use in post treatment billing. The medial providers use the information to determine how aggressively or which procedures to employ top collect on a medical bill. But, again the question of any data being used in unforeseen ways is a big concern for many consumers.
For those consumers that are concerned about whether a hospital should have access to their credit history or credit score or even their financial records, make sure to read all the admission papers carefully that are asked to be signed. Any organization, including a hospital, needs to have the consumer permission to obtain information about their specific credit history.
Even while credit scores and credit histories have become increasingly important in most consumers day to day lives, it is hard to imagine how the use of credit profile and credit scores use could be employed in such a manner.
In the end, whether the medical credit score concept is accepted or not, this is another reason why it has become so important that consumers check their credit reports and credit score. By knowing what is in your credit report, consumers are able to see any erroneous data that should be corrected and all claims of debts that have been reported in the credit history including medical claims that were made in a credit report.
The growing use of credit reports and credit scores makes it imperative that consumers track and dispute any items that were reported as unpaid and challenge any claims that can adversely affect their credit rating.
Credit Scores and Collection Accounts
Collection accounts will almost always have a significant negative impact on a credit score.
A collection account is a listing in a credit report that represents a consumer account that has been assigned to a company to collect on an unpaid debt obligation.
If a consumer stops making the contractual payments on an account or debt, the lender or creditor may assign the account or sell the account to a collection agency. This action turns a credit account into a collection account. The collection account is the account with the collection company that is collecting on an unpaid consumer debt and is generally not the original creditor or original lender.
The original unpaid obligation or debt may be from a credit card debt that was unpaid, medical bills, utility bills, or any other contractual debt that was left unpaid and then sent to a collection agency by the original creditor. The collection account is the account with the collection agency as opposed to the delinquent account that exists with the original creditor.
The original creditor’s delinquent account may also be reflected in the credit report. For instance, a collection account for an unpaid credit card balance may be reported to the credit reporting agencies as the original delinquent account with the credit card company, usually as a charged off account, as well as the balance now being collected by the collection agency.
A collection account may also be reflected in the credit report without a corresponding original creditor account. As an example; cell phone companies and medical bills that are unpaid may be sent to a collection agency to collect the unpaid delinquent debt and these creditors will not report to the credit reporting agencies, yet the collection agency the debt is assigned to will most likely report to the credit bureaus or credit reporting agencies.
A credit score evaluates collection accounts on an individual’s credit report according to when the collection occurred. Individual credit scores weigh collections on a credit report according to when the collection occurred. Generally, the more recent the collection, the more it’s going to impact the credit score.
Collection account records, no matter how recently opened, all should expire and be removed from an individual’s credit report seven years after the last 180-day late payment on the original debt.
Note that closing an account doesn’t make the record in the credit report go away. A closed account will still show up on a credit report, and its status will be considered in the credit score calculation. Paid collections and unpaid collections are generally scored the same; the impairment to a credit score occurs as a result of the account being delinquent. .
Since the collection account is different from the original creditor account, whether it is a credit card or a medical bill, and the collection accounts cannot report a payment history since technically there is no payment record with collection agency only with the original creditor then there will not be a payment history from the collection agency in the credit report and the credit score simply evaluates the date of the account and the amount.
It is always worth the effort to investigate the validity of collection accounts and the amount owed to see if they can be removed from a credit report for inaccuracy, which is common.
Importance of Credit Scores Underscored with FTC Congressional Subcommittee Testimony
Credit scores have become increasingly important in our lives, whether we like it or not and their importance and impact is almost certainly going to expand not diminish.
The Federal Trade Commission just recently presented a report to the U.S. House Subcommittee on Financial Institutions and Consumer Credit of the Committee on Financial Services regarding actions by the FTC that cover the accuracy of consumers’ credit reports, preventing identity theft, and giving consumers a better understanding of their credit scores and what they mean. A press release provided by the FTC stated that, “Because credit scores are important to understanding the rates consumers pay for credit cards, mortgages, auto loans, and insurance, Congress wrote into the FACT Act a consumer’s right to purchase a credit score, and a requirement that certain mortgage lenders provide a free score to home loan applicants.”
The prepared testimony covered actions taken by the FTC that included the agency’s completion of rule making to ensure that consumers have access to free annual credit reports and understand that right; a rule making to enhance consumers’ rights to dispute errors in their credit reports by the credit reporting agencies and the furnishers of the data; and a study on the use of credit scores regarding pricing of policies in the automobile insurance industry.
The foundation for the testimony is grounded in The FACT Act which amended the FCRA. The FACT Act and the FCRA is the federal law that governs the operation of the nation’s consumer reporting system. The FCRA was instituted to regulate the practices of consumer reporting agencies and the furnishers of the data to the consumer reporting agencies as well as the users of the credit reports prepared by the consumer reporting agencies for activities such as extending credit. The FTC is the primary government agency responsible for enforcing and monitor activity associated with The Fact Act and FCRA which means the FTC is the primary agency governing credit reports and credit scores.
An interesting note in the testimony covers the FTC’s understanding of the importance of credit utilization figures in calculating credit scores. For example, the guidelines state that when furnishers report an outstanding balance on a credit account, they should also report the consumer’s credit limit. This is because the failure to include a credit limit can cause credit evaluators to inaccurately estimate how much available credit a consumer is using, which is an important factor in assessing creditworthiness.
As part of the report The Commission noted that, “with sufficient knowledge about the score and what it means, consumers may use that information as a valuable shopping
tool.”
The conclusion from this report is that the FTC is watching the credit score market to ensure that the market remains fair and competitive and will continue to be a vital part of our lives.
Will a Debt Consolidation Loan Help My Credit Score?
A: Debt consolidation loans are one of many alternatives to help improve an individual’s financial position. Debt consolidation loans can reduce a number of monthly debt payments into one consolidated payment that will usually have a much lower monthly payment. The debt consolidation can certainly reduce monthly payments and reduce stress but the impact on credit scores will generally be fairly small shortly after the loan. Over time a debt consolidation loan can improve a credit score more significantly.
The main factors that are used to calculate a credit score include: payment history, amount of debt owed, length of credit history, new credit and types of credit used. Based on this information, a reasonable conclusion is that the credit score will not change since none of these factors are technically altered. The amount of debt an individual has remains the same, the debt is just moved on to one account from several accounts. And though any accounts that may have been late in the past are now paid off and consolidated into one loan, those payment histories will still remain in the credit report.
The factor used in credit score models that does improve, is a subset of the amount owed. Measuring the amount owed on an individual’s credit report to determine a credit score evaluates several aspects of the accounts including the total amount owed on accounts, the amount owing on specific types of accounts, the number of accounts with balances, the proportion of credit lines used or the proportion of balances on revolving credit accounts such as credit cards to the total credit limit, and the proportion of installment loan amounts still due or the proportion of installment loan balances to the original loan amount.
One of the factors that changes with a consolidation loan, mentioned in the list above, is credit utilization or the total balances in relation to the available credit. Since the new consolidation loan pays off a number of other balances on credit cards and other accounts that are included in the new consolidation loan, those accounts will now experience a measurable increase in available credit. The new loan doesn’t change the amount of debt; it simply increases the total available credit with the new loan amount and reduces balances on more than one account that were paid off with the new loan. Over time this will increase the credit score.
Since the component of the credit score that will be impacted the most by the consolidation loan is the amount of credit available, which has become available due to the new consolidation loan, these accounts should not be closed. If the accounts are closed after they are paid off, this will reduce the amount of credit available, thus lowering the credit score.
Overall, it can be very difficult to say how any one single factor or new information will impact a credit score because the value of each factor depends on the overall information in the credit report. The credit score is dependent on the mix of information, which varies from person to person and for any one person over time.
Credit Repair Scams Halted by FTC
In October, 2008 the Federal Trade Commission sent out a press release regarding charges brought against another credit repair scam operation. Credit report repair services that offer to repair credit for consumers have popped up across the nation. Unfortunately, many of these organizations fail to help consumers and in some egregious cases, violate the law by taking money in advance and deceiving consumers regarding the services they perform to improve credit histories and credit scores.
In October, the FTC announced that two bogus credit repair companies and their principals settled Federal Trade Commission charges that they falsely claimed they could clean up consumers’ credit reports and collected up-front fees for their services, in violation of federal law. In one case, the FTC alleged that the defendants marketed their services via Web sites and real estate investment seminars and falsely claimed that their special relationships with creditors, collection companies, public records providers and credit bureaus enabled them to remove derogatory information from consumers’ credit reports.
According to the FTC’s complaints, all of these defendants falsely promised to remove negative information from consumers’ credit reports, such as late payments, charge-offs, collections, tax liens, repossessions, bankruptcies, and judgments, even when the information was accurate and not obsolete, in violation of the FTC Act and the Credit Repair Organizations Act (CROA). The Commission also charged them with violating the CROA by charging and collecting payment for their services before doing any work.
In the first case, Successful Credit Service Corporation, also doing business as Success Credit Services, and Tracy Ballard, also known as Tracy Ballard-Straughn, the settlement order prohibits them from collecting additional money from consumers who purchased their services before October 16, 2008, when the court halted their business practices.
The defendants in the second case are Rudolph Joseph Strobel, a/k/a Lee Harrison, and Leanna Ruth Harrison, both doing business as Lee Harrison Credit Restoration, Credit Restoration, and Lee Harrison Associates Credit Restoration. The order bars them from collecting money from consumers who purchased their services before August 28, 2008, when the court halted their business practices, and requires them to return any money orders or other negotiable instruments received after that date.
Understanding your credit situation and the facts on how to clear up credit problems and improve a credit score is the first step to solving credit problems. Rushing into a quick fix scheme can often lead to less than satisfactory results. Know that facts before working with a credit repair organization to help your credit score.
How Your Credit History May Affect Your Auto Insurance Rates
Auto insurance companies often consider your credit report when they are determining the proper rate to charge you for your auto insurance. If you are shopping around for auto insurance, be aware that potential insurers may be looking at your credit report. There is a statistical correlation between consumer’s credit history and possible auto insurance claims. Insurers assume that customers with better credit records are also more likely to be good risks for auto insurance policies.
Not all companies use credit history as their primary determination for your rate, so if you have a poor or nonexistent credit score, shop around for one that uses traditional methods -age, driving record, type of vehicle, etc. to determine your auto insurance rate. Different methods vary from company to company, so if you are in doubt about how a potential insurer makes its decision, be sure to ask.
According to The Federal Fair Credit Reporting Act, auto insurance companies are well within their rights to use your credit report in this manner. Found at http://www.ftc.gov/os/statutes/fcra.htm. The act states that companies can use this information for “Reasonable procedures”. It is the purpose of this Act to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title.”
In order to be sure that your insurer finds the correct information on you, be sure to provide them with the necessary information promptly. Most likely, they will need your full legal name, current address, social security number, and date of birth. This will enable them to get your insurance credit score, which helps insurance companies assess the information in your credit report quickly to determine if you are a good candidate for auto insurance.
This credit score may vary from one insurance company to the next, as each may use a different method to calculate your insurance risk and premium. The insurance score is an all-encompassing method that takes into account many risk factors, including credit. Since each company uses slightly different methods, it is difficult to even give a range for what a good insurance credit score might be. In fact, the program the insurance company uses may not even tell them the specific score you receive, only if you are a qualifying candidate or not, and what tier your rates fall into.
If you feel that there are errors or incorrect information on your credit report that is affecting your insurance credit score, you should contact the credit bureau issuing the report. Unfortunately, there is nothing your insurance company can do to help you with this problem until it is resolved by the credit bureau. Once you have corrected it, you can resubmit updated information to your insurance company, and have them reassess your rate.
The key concept is that credit scores are a growing element in many business decisions. Fix your credit score before it becomes too late and the costs of having a low credit score become very real costs. The sooner you start on the path of credit score help the faster the credit score will improve and the simpler transactions will become that are dependent on this number.
Credit Repair Scams
When a person falls behind on their debt, things can be overwhelming. They may be laden down with harassing calls from debt collectors. Or worse, they might even have to go to court because a creditor, fed up with not getting their money, decided to take legal action. A person’s difficulties with debt are even more exacerbated if they are trying to buy or rent a house because of their bad credit report and credit scores. For all of these reasons many will be tempted to turn to credit repair companies. However, this may not be a wise choice.
When consumers have problems with credit, excessive debt and a bad credit profile or credit report there are a number of techniques that can be used to help the situation. Some of the solutions involve credit counseling, debt consolidation and credit repair. These are not the same processes. Credit repair companies generally engage in the sole process of removing bad credit in someone’s credit report and more often than not they either do not accomplish the job and / or charge exorbitant fees to do this. These services are generally very ineffectual and costly and are designed to take advantage of consumers in financial trouble.
The biggest issue with credit repair companies is that if they do ‘fix’ one’s credit they are using means that a person could do themselves for free. This involves sending dispute letters, something that is easy to do. A basic dispute letter will inform a creditor that they must provide documentation proving a person owes money to them. They must also correct any errors that are listed in the letter. If the creditor fails to do either of these things, it is possible that a person can get any debt associated with them erased.
This process is without question time consuming and has to be performed in a fairly precise manner to make sure the debts is identified properly, the letter is sent according to the standards established by the Fair Credit Reporting Act and that the proper follow up is completed. The amount of work involved may warrant the need for a assistance or may not, the problem with most all credit repair companies is that there fees are excessive and there results are generally underwhelming.
So, if sending dispute letters is so easy, why do people still go to credit repair companies? It’s usually because they believe the credit repair company has access to means that they don’t have access to. This is just not true. Even credit repair companies that are legal are limited to just sending out dispute letters. Consumers can do this themselves, even if they don’t know how to write one. This is because numerous sample dispute letters are available all over the Internet.
Some credit repair companies also use a scam technique known as file segregation to try to ‘fix’ the credit of their customers. The process of file segregation begins with the credit repair company asking the customer to get an employee identification number, (known as EIN). This is a form of identification that works like a Social Security number; it is often assigned to employees. Anyway, once an EIN has been obtained, the customer uses it to establish a new credit identity. Different contact information is used to make it harder for creditors to track the customer down.
The problem with trying to fix credit in this manner is that it is considered fraudulent. An individual cannot establish a new identity with the intent to escape debt associated with a previous identity. And though having an EIN is perfectly legal, things appear fraudulent because of the way different addresses are used. When the government notices what is going on, it is possible that individuals associated with the scam, (who are actually the victims), get criminally prosecuted. The credit repair companies may also get in trouble, but who cares what happens to them.
All in all, the process of credit repair is one that may take time and requires attention to detail. However, some debtors will be either lucky enough or have the right information and may actually get some of their credit expunged through the process of sending dispute letters. But the likelihood of getting all of one’s debt eliminated through an expensive credit repair company is unlikely. The one real solution is being patient, work on the debts yourself, pay back bills over time, consider debt consolidation or even bankruptcy if the bills are more than what one can handle and do your own research to solve the problem. The tools to fix your credit and debt problems are easily available to you.
Get Out of Debt, a Starting Point
Debt is in every household. Too much debt can be paralyzing and you may be in over your head and not even fully realize it. If you suspect that you’re carrying too much debt in the form of credit cards, mortgages, car loans and other debt instruments, you need to determine your exact position and then, most likely, begin working to free yourself from the weight of the financial burden.
Too Much Debt
It’s expected, and actually a good thing, to have some debt. Your mortgage, for example, is one of your largest tax advantages. But there are few, if any, perks to having a balance on credit cards or other loans. But despite this Americans continue to spend using credit cards. The average American now has over $9,000 in credit card debt and that number’s not getting any lower.
Acceptable debt levels vary by the individual, but a good rule of thumb is looking at percentages. If 20% or more of your take home pay is going to debt that is not of the mortgage variety, you’re looking at too much. Likewise, if more than 30% of your gross income is tied up in your home, you are most likely becoming or already are overextended.
It may be that your numbers are fine, but you still feel finances are tight. If you struggle to make the minimum payments on your debts or can’t even list what you owe on what loan, you’re looking at too much, and it’s time to make a change. Many people who have too much debt don’t think about it. They get their bills in the mail and make the minimum payments or even end up paying late fees on a regular basis without much thought of paying off the whole balance. This is how individuals go deeper into debt and incur more stress.
Making a clear decision to get involved in debt elimination and finding out how to create a plan will actually get people into a position of less debt, better cash flow and less stress. The process will certainly help your credit, credit report and credit scores along the way. Making a plan to get out of debt is the starting point.
Budget
The first step in resolving your debt is to budget correctly each month and monitor the money you have. First, you need to determine what your monthly income or earnings are and what your expenses are. For an entire month, keep track of all spending. Where is your money going? Write down your bills and keep receipts from credit card transactions. Then, at the end of the month, you can collect your items in a single list and tally up the total. If this number is higher than your income, you know you’ve got some work to do.
Write down the names of the different accounts that you have to make payments on, the order they need to be paid, and how much money you need to eliminate that debt. Divide those transactions into essential ones and nonessential. Bills are essential, but some bills such as cable or cell phones may not be. It’s a personal decision. Nonessential items are things such as eating out, entertainment and travel (unless its part of your career.) As you make your budget, you will be able to identify what your spending habits are. The next logical step is to items to remove the nonessential ones. Cut back on eating out and stick to the free coffee in your employer’s break room. Take the bus rather than trying to park downtown and cancel all the premium packages on the cable you never watch anyway. The key here is to eliminate or at least reduce expenses that are lowest in priority. Trim the fat from your spending and design a budget that is reasonable, yet tight.
Paying Down Debt
Once you have your spending under control, stop spending on your credit cards if possible. If you must charge things, use a debit card so that the money comes directly from your bank account or open a new account with a low limit to generate a balance that you will now be paying off monthly. Then tackle the old debt.
The plan for getting the old debt paid off is to focus on one debt at a time. You still make regular payments on all of the debts that you can, but only focus on paying off one at a time. Pay off the loan with the highest rate of interest first. The higher the interest rate on a credit card, the more you pay over time. Pay the minimum on every card except your target. Throw as much as you can toward that card until you have it paid off. In the beginning, cut back on expenses as much as possible to get the first debt paid off. Once the first debt or credit card is paid off, you take the money that you had been applying to that debt and apply it to the next debt that you want to pay off. Then move on to the next card – this one should have the next highest interest rate. Finally, you’ll have all of your debt resolved and you’ll be free to move forward.
The creation of a budget is always a good project so you on work on a path to successful debt management and elimination and then stay on a plan to live a better lifestyle without the need for excess debt.
Using Credit Wisely
Now that you’ve gone through the trouble of paying off your debt, you must work to eliminate the possibly that you’ll end up in the same situation again. Save for anticipated and unanticipated expenses to keep from using your credit cards in emergencies. Find credit cards with a low interest rate should you wind up with a small balance for a month or two. If you do find yourself using your credit card, be as frugal as possible and use it only for items that are long term investments, not incidentals such as travel or meals out.
Sample Credit Scores
Credit histories, credit reports and credit scores are key component of every individual’s financial health whether we like it or not. Unfortunately, too many consumers don’t know what the numbers of credit score mean for them. Have you ever obtained your credit report and credit score or been told about this number before and didn’t know what it means? The formula behind credit scores is a bit of a secret and credit reporting agencies can each assign you a different score. The good news is that credit scores have a range and if you understand what the ranges mean you can effectively evaluate your score.
Depending on who you read or which credit score you read, scores may go as high as 900 and as low as the 300s. A range of lenders use credit scores to facilitate lending decisions and every one of these lenders has their own guidelines for making loans and providing credit based on the borrower’s credit scores and other attributes used to make the credit decisions. There is no single credit score applied by all lenders that’s determined loan and credit approvals as well as the interest rates for the use of the credit.
With the recent tightening of credit, some report that what was rated as “good” may have changed a bit. What hasn’t changed is the higher your number the better. Here is what most sources that create the credit score models say about the ranges:
800-850 or more
This may be considered perfect credit. One caveat. If you have this number and no supporting credit history it is a meaningless score. People with a score in this range and a long history will get the best interest rates on everything. We all should strive for this.
720-799
Excellent credit. Most likely you get pretty much the same rates as those above this range. No worries here.
680-719
This is good but not perfect. Think of this as a being a “B” student. It makes sense to work a bit harder and get it into the ‘A” range. You will get approved for loans and credit cards but will you will pay slightly higher rates than those with excellent credit and you may be charged slightly higher premiums for auto insurance.
620-679
Good or okay credit. Scores in this range are fairly common so you should not despair. However, you may be getting charged more for credit and that is money you do not have to spend if you get your financial house in order. Even with good credit it always worth the effort to strive for perfect credit or a better credits score. The higher score, the more credit opportunities that will be available and the better the borrowing terms such as larger loan amounts.
580-619
No one likes to be “below average” and scores in this range are below average and may be teetering down a path to bad credit. People with these scores are considered “sub prime” and given the news of late, you know that is not good. In a tight credit market, if you have a score in this range you will have trouble securing financing and if you do the terms will not be good. Obtaining credit will not blocked but interest rates will be higher and credit conditions will be more restrictive. No question: get moving and improve your score.
500-579
Folks with a score in this range need to improve their credit and engage some form of credit repair. Most likely an account went to collection, became a charge-off, a mortgage went into foreclosure or bankruptcy was filed. Credit scores that fall this low will often have generally have a significant negative event such as a mortgage foreclosure or bankruptcy that involved numerous accounts or numerous accounts that have payment delinquencies. This is an indication of credit mistakes that can impact your financial life for years.
Below 500
There is no good news here. People with a score below 500 must make serious changes to pull themselves out of the financial situation they are in. In these situations, the credit score is usually impacted by both a significant negative event such as bankruptcy or foreclosure as well as having the vast majority of credit accounts paid past due.
The key to good credit begins with paying your bills on time and living within your means. It really is that simple.