Starting Friday, the three largest credit bureaus are overhauling how medical debt affects your credit.
Equifax, Experian and TransUnion are automatically removing a significant portion of medical debt that plagues the credit reports of tens of millions of Americans. The credit bureaus first announced the reform in March amid regulatory pressure from the federal government's Consumer Financial Protection Bureau (CFPB). The initial round of changes are in effect as of Friday, with more changes slated for next year.
Now, medical collections debt that you've already paid off should no longer appear on your credit reports. Previously, medical bills that went into collections could linger on reports — and lower credit scores — even after the debt was paid off. That’s because tradelines (industry jargon for credit accounts) can stay on reports whether they are paid off or not. And collections tradelines of either type aren’t viewed favorably by lenders and creditors.
It’s not yet clear if the credit bureaus will immediately purge all paid medical debt from their reports on Friday, or if the removal process would simply begin that day. Neither TransUnion nor the Consumer Data Industry Association, a lobbying group that represents the big three credit bureaus, was able to clarify when questioned by Money.
Another change taking effect Friday: Unpaid medical bills that are sent to collections will not post to your credit report for a full year — up from six months. 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 collections debt of $500 or less, and the cutoff may increase. According to the CFPB, most medical debt tradelines are less than $500, meaning this move alone would be a major boon for millions of Americans.
Collectively, these changes will bar 70% of all medical collections debt from appearing on credit reports, the credit bureaus estimate. That would account for more than $60 billion of debt.
Should medical debts affect credit reports?
Meanwhile, the CFPB is determining whether any unpaid medical billing data should be shown on credit reports. Under Director Rohit Chopra’s leadership, the CFPB has been highly critical of how medical debt affects credit.
“In many ways, it’s hard to call medical debt a real debt,” Chopra said in an announcement of a recent agency report on medical debt. “Few people choose to take on medical debt, and typically, patients have no idea how much they will be charged for a service or a procedure.”
According to the report, medical debt is now the most common collections debt that appears on credit reports, and debt collectors hound Americans over their unpaid medical bills more than any other type of debt.
“Coercive credit reporting forces patients and their families to pay bills whose accuracy they doubt,” Chopra said. “And, for those families who refuse to pay a bill whose accuracy they question, they can find their credit ruined and their prospects for employment and housing dimmed.”
The agency estimates that $88 billion of medical debt appears on the credit reports of 43 million Americans.
These figures represent only a fraction of all medical debt and debtors. Not all medical debt goes to collections, and not all collections debt appears on credit reports. The exact number is difficult to calculate, but according to the non-profit Kaiser Family Foundation, Americans hold at least $195 billion in medical debt, and the organization stresses that’s a conservative estimate.
Managing your medical debt
While the credit relief is a welcomed move by consumers and advocates alike, it does not absolve anyone from their medical debts.
Whether the new credit-reporting rules affect you or not, you should still 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 has a smaller chance of affecting your credit and financial future.
Thanks to an entirely separate measure called the “No Surprises Act” that went into effect in January, you have additional tools to fight unexpected medical bills. This new federal law does not ban all surprise bills outright but should meaningfully limit them as well as arm you with new rights to dispute incorrect or out-of-the-blue charges.
In the coming days, you may want to check your credit reports to ensure your qualifying medical debts were removed. The process is free. Normally, the credit bureaus allow you to pull your reports at no charge once per year. Until the end of 2022, however, you can check them weekly.
If you find that medical collections debt that you paid off is still showing up, you can dispute that information, and the credit bureaus will have to investigate your claim within 30 days. If they fail to act, you can also file complaints with the Federal Trade Commission and/or the CFPB.
After the medical collections debt is removed, you could see a modest increase to your credit score.