One of the features of modern life that typically goes unmentioned is the control your credit rating has over your ability to access the modern economy. So throw the dysfunctional U.S. healthcare system into the mx, and here’s what happens (boldface mine):
Mike and Laura Park thought their credit record was spotless. The Texas couple wanted to take advantage of low interest rates, so they put their house on the market and talked to a lender about a mortgage on a bigger home in the Dallas-Fort Worth suburbs.
Their credit report contained a shocker: A $200 medical bill had been sent to a collection agency. Although since paid, it still lowered their credit scores by about 100 points, and it means they’ll have to pay a discount point to get the best interest rate. Cost to them: $2,500.
A growing number of Americans could encounter similar landmines when they refinance or take out a loan. The Commonwealth Fund, a private foundation that sponsors health care research, estimates that 22 million Americans were contacted by collection agencies for unpaid medical bills in 2005. That increased to 30 million Americans in 2010.
Surprisingly, even after the bills have been paid off, the record of the collection action can stay on a credit report for up to seven years, dragging down credit scores and driving up the cost of financing a home. An estimated 3.4 million Americans have paid-off medical debt lingering on their credit reports, according to the Access Project, a research group funded by health care foundations and advocates of tougher laws on medical debt collectors.
Among them are Nathen and Melissa Cobb of Riverton, Ill., who tried to refinance their home last year. They didn’t qualify for the loan because of $740 in medical bills that had been sent to a collection agency. The Cobbs were surprised because the bills — nearly a dozen small copayments ranging from $6 to $280 — had been paid before they tried to refinance. The collection action took their credit score from good to mediocre and is likely to mar their credit report for years.
…Medical bills make up the majority of collection actions on credit reports, and most are for less than $250, according to Federal Reserve Board research.
The Parks had no idea a billing error they’d sorted out a year earlier — they never actually owed the $200 — could affect their credit
These aren’t large bills, and either they were paid off or never owed in the first place. Yet this is limiting middle-class Americans’ access to capital. No private rating agency should have this kind of power, certainly without clear and transparent processes and the ability to appeal.
Were I a cynic, I might think these foulups are intentional.
No need to worry though: I’m sure Geithner and Holder will get right on this.[/snark]