Starting Friday, the three biggest credit bureaus are reviewing how medical debt affects your credit.
Equifax, Experian and TransUnion automatically eliminate a significant portion of the medical debt that plagues the credit reports of tens of millions of Americans. Credit bureaus first announced the reform in March under regulatory pressure from the federal government’s Consumer Financial Protection Bureau (CFPB). The first set of changes went into effect on Friday, with more changes planned for next year.
Now, medical collection debts that you have already repaid should no longer appear on your credit reports. Previously, medical bills that were subject to collections could linger on reports — and lower credit scores — even after the debt was paid off. This is because trade lines (industry jargon for credit accounts) can remain on reports whether paid or not. And commercial collection lines of either type are not viewed favorably by lenders and creditors.
It is not yet clear whether the credit bureaus will immediately purge all paid medical debt from their reports on Friday, or if the deletion process will simply begin that day. Neither TransUnion nor the Consumer Data Industry Association, a lobby group that represents the Big Three credit bureaus, were able to clarify when questioned by Money.
Another change taking effect Friday: Unpaid medical bills that are sent to collections will not be posted to your credit file for a full year, up from six months previously. The increase is intended to give you more time to negotiate your bills before they start affecting your credit, the bureaus said.
In the first half of 2023, the three credit bureaus will also stop including medical collection debts of $500 or less, and the threshold may increase. According to the CFPB, most commercial lines of medical debt are under $500, meaning this decision alone would be a major boon for millions of Americans.
Collectively, these changes will prevent 70% of all medical collection debt from appearing on credit reports, the credit bureaus estimate. That would be over $60 billion in debt.
Should medical debt affect credit reports?
During this time, the CFPB determines whether unpaid medical billing data should be shown on credit reports. Under Director Rohit Chopra, the CFPB has been highly critical of how medical debt affects credit.
“In many ways, it’s hard to call medical debt real debt,” Chopra said in a announcement from a recent agency report on medical debt. “Few people choose to incur medical debt, and typically patients have no idea how much they will be charged for a service or procedure.”
According to the report, medical debt is now the most common collection debt that appears on credit reports, and debt collectors harass Americans for their unpaid medical bills more than any other type of debt.
“Coercive credit reports force patients and their families to pay bills that they doubt are accurate,” Chopra said. “And, for families who refuse to pay a bill whose accuracy they question, they can see their credit ruined and their job and housing prospects dim.”
The agency estimates that $88 billion in medical debt appears on the credit reports of 43 million Americans.
These numbers represent only a fraction of all medical debts and accounts receivable. Not all medical debt goes to collections, and not all collection debt shows up on credit reports. The exact number is hard to calculate, but according to the nonprofit Kaiser Family Foundation, Americans hold at least $195 billion in medical debt, and the organization stresses that this is a conservative estimate.
Managing your medical debt
While credit relief is a move welcomed by consumers and advocates, it does not absolve anyone of their medical debts.
Whether the new credit reporting rules affect you or not, you should always pay your medical bills on time, to the best of your ability. The only difference now is that if you don’t make your payments, your medical debt is less likely to affect your credit and your financial future.
Thanks to an entirely separate measure called the “No Surprises Act” which took effect in January, you have additional tools to combat unexpected medical bills. This new federal law does not outright ban all surprise bills, but should limit them significantly and give you new rights to dispute incorrect or unlikely charges.
In the coming days, you may want to check your credit reports to make sure your eligible medical debts have been cleared. The process is free. Normally, the credit bureaus allow you to withdraw your reports free of charge once a year. Until the end of 2022, however, you can view them weekly.
If you find that the medical collection debt you paid persists, you can dispute this information, and the credit bureaus must investigate your complaint within 30 days. If they do not act, you can also lodge a complaint with the Federal Trade Commission and/or the CFPB.
After removing debt from medical collections, you might see a slight increase in your credit score.
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