Are All Collections Equal? The Case of Medical Debt

Bills for unreimbursed medical care may be reported to national credit reporting agencies by third-party debt collectors. The use of this information in credit scoring models, which have not traditionally distinguished collection accounts for medical bills from other collection accounts, has been controversial because of the unique characteristics of medical debt. This paper explores the predictive value of medical collections in the context of a credit scoring model. We find that medical collections are less predictive of future credit performance than nonmedical collections. We also find that medical collections that have been paid in full are less predictive than those that remain unpaid. These results suggest that the practice of treating all collections the same over-penalizes the credit scores of consumers with medical collections and reduces the predictiveness of credit scoring models.