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Credit-score provider VantageScore Solutions LLC said it would stop factoring all medical debts that are in collections into the latest versions of its scores.

VantageScore’s decision goes beyond a recent move by Equifax Inc., Experian PLC and TransUnion to remove many medical collections from people’s credit reports. The three companies own VantageScore, which competes against Fair Isaac Corp., the creator of the more widely used FICO credit scores.

Hospitals and other medical providers send unpaid bills to collection companies, which then report the accounts to the credit-reporting firms. The information often lowers people’s credit scores, which makes it harder to get approved for credit or to get loans on affordable terms.

VantageScore expects the change to take place in October. Millions of people with medical debts in collections could see a score increase of as much as 20 points, the company said.

VantageScore decided to remove all medical collections after finding that they aren’t good at predicting a person’s likelihood of repaying other debts, especially compared with other accounts in collections, said Silvio Tavares, the company’s chief executive.

“Especially given the impact that Covid-19 had on consumers, having medical debt isn’t necessarily reflective of someone’s ability to pay back a loan," Mr. Tavares said.

VantageScore began lessening the role that medical debt played in some of its scores several years ago. More than 2,600 lenders and other financial institutions use its scores, the company said.

Equifax, Experian and TransUnion maintain credit reports on more than 200 million people in the U.S. The three firms began removing medical-collection accounts that had been paid from credit reports last month and have delayed adding new unpaid medical debts to credit reports for a full year after being sent to collections, up from a six-month waiting period.

Unpaid medical debts of less than $500 will be removed from credit reports starting in the first half of next year, though it is possible that the dollar amount could rise, according to people familiar with the matter.

The Consumer Financial Protection Bureau recently said the changes won’t help enough people. A majority of reported medical collections on a dollar basis will likely still remain on credit reports, the regulator said. Before the recent changes, some $88 billion of medical bills sat on 43 million credit reports, according to the CFPB.

Earlier this year, before the changes were announced, the CFPB said it planned to hold credit-reporting firms accountable for not taking enough action against companies that report erroneous medical debts.

 

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