Most Medical Collection Debt Will be Erased from Credit Reports

  • By Patrick Ryan
  • Mar 21, 2022

If you have been waiting for your credit score to increase, don’t lose hope. The major credit bureaus of TransUnion, Experian, and Equifax recently announced nearly three-quarters of all medical debt will be removed from consumer credit reports as early as July of this year. As long as the medical debt in question has been paid, it will likely be removed from the credit report.  

Additional Medical Collections Debt Changes of Note

The amount of time it takes for medical debt to appear on a consumer credit report is also being adjusted. The length of time for such debt to be listed on the credit report is jumping from half a year to a full year. Fast forward to the first two financial quarters of next year, and the credit agencies will erase unpaid medical debt in collections from credit reports as long as the total is below $500.

It is also interesting to note the Consumer Financial Protection Bureau, a group that serves as a regulator of the credit agencies, has been considering a full ban on medical debt. The changes come in response to recent statistics that show nearly 60% of all bills in collections and on credit reports are medical bills. Furthermore, the failure to pay medical bills in full and on time has been proven to be less of an accurate predictor of payment issues down the line than other types of debt such as auto loans, student loans, and home mortgages.

Medical Collection Debt Numbers of Note

All in all, about 10% of Americans have medical debt of more than $250. According to the National Consumer Law Center, racial minorities are especially likely to be burdened by medical collection debt. Though medical debt is not a component of one’s credit report, if it stays with the initial service provider, it impacts credit score after shifting to collections. Such debts have the potential to reduce credit for upwards of seven years. However, the new rule detailed above will eliminate those debts from credit reports if they are paid in full.

The Rule Change’s Impact on Consumer Credit Scores

Medical debt listed on one’s credit report has the potential to reduce their credit score by more than 100 points. A credit score hit of 100 or more points is problematic in the context of qualifying for auto loans, a home loan, and additional lines of credit.  

Why the Change is Being Made

The logic in eliminating medical debts from credit reports is that everyone needs medical care at one point or another, so it is arguably punitive to damage one’s credit if they lack health insurance and/or the funds necessary to pay for medical care.

The Consumer Financial Protection Bureau states medical debt is by far the most common type of debt listed on credit records. It is pretty shocking to learn Americans amassed nearly $90 billion of medical debt as of the summer of 2021. Add in the fact that medical debts have increased during the ongoing coronavirus pandemic and ensuing economic recession, and there is even more reason to eliminate paid medical debt from credit reports.

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