Home Pay off Medical debt and credit scores: How new rules ease the pain

Medical debt and credit scores: How new rules ease the pain


Medical debt is now as American as apple pie — more than half of American adults say they’ve gotten into debt due to medical or dental bills in the past five years, according to a new survey from the Kaiser Family Foundation. A quarter of these adults owe more than $5,000 and almost 20% say they never expect to pay off their medical debt.

While the medical debt situation looks grim, there is a small bright spot for those with late medical bill payments that have damaged their credit scores. Effective July 1, the three major credit bureaus – Equifax, Experian and TransUnion – will now remove all medical collection debts that have been paid from their credit reports. In a March 2022 announcement, the bureaus noted that this rule change removes 70% of medical collection debt from consumer credit scores. Previously, collections remained on file for seven years, whether the debt was paid or not.

Along with eliminating paid medical collection debts, credit agencies will now give Americans a year to settle unpaid medical bills before they are added to their credit reports. Additionally, in the first half of 2023, the credit bureaus plan to remove and unreport all medical collection debts under $500.

The Consumer Financial Protection Bureau said it is reviewing how credit bureaus use medical debt in their reports and whether it is appropriate to include unpaid medical billing data on credit reports. “Certain populations are more likely to incur medical debt,” notes the CFPB in a report (PDF). These populations include low-income people, blacks, veterans, young adults, and older Americans.

We’ll explain what you need to know about changes to medical debt reports, including how you can confirm that paid medical collection debts have been removed from your credit reports.

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What is the impact of unpaid medical debt on credit reports?

Unpaid medical debt is usually turned over to a collection agency after 60 to 120 days of delinquency. From there, major credit bureaus will now extend a one-year grace period for consumers to settle the debt — either pay in full or negotiate with their insurance or the collection agency — before adding it on. to a credit report as a collection account. .

Prior to July 1, the old grace period was about six months, or 180 days, and all collections remained on consumer credit reports for seven years. The new rule changes mean that paid medical collections debt will be removed from credit scores, although unpaid medical collections debt will still remain on your credit report for seven years.

When was paid medical collection debt removed from credit reports?

As of July 1, paid medical recovery debts should no longer be included in the consumer credit reports of the three credit reporting agencies. The United States Public Interest Research Group encourages Americans with a history of medical debt collection to check their reports to confirm that paid debts have been cleared.

Another change will also go into effect in the first half of 2023. Equifax, Experian and TransUnion said any medical collection debt under $500 will no longer be included in credit reports. Most medical collection debts on credit reports are less than $500, according to the CFPB (PDF).

How can I confirm that my paid medical debt has been removed from my credit file?

The three major credit bureaus have offered free weekly credit reports online since the start of the Covid-19 pandemic. You can get your own credit report each week at AnnualCreditReport.com. (Before bureaus started offering free weekly reports, Americans were entitled to one free credit report per year.)

Once you’ve uploaded your reports, skim through them carefully to find paid medical debt collection notices. Look specifically for sections labeled “Collections” or “Account Information”.

If you find that paid medical debt is still burdening your credit score, you will need to dispute each item with each of the credit bureaus separately. Follow the links below to each office’s page for filing disputes.

How will these changes affect my credit rating?

Having a debt to collect can drastically lower your credit score – and it gets worse the longer it hasn’t been paid. For example, your credit score is likely to drop more if an invoice has gone unpaid for 150 days instead of 30 days.

Once a collection has been removed from your reports, you may see a positive change in your credit scores. The impact on your credit score will depend on the number of collection accounts you have. If your only collection account is deleted from your report, your score could increase by up to 150 points, according to credit repair company Credit Glory.

For more financial information, here are the best credit monitoring services. Also, here how to save money at the gas pump and while shopping.