Certain Medical Debt to be Erased from Credit Reports
The three major credit bureaus – Equifax, Experian, and TransUnion - have announced that starting July 1, 2022, certain types of medical debt will be removed from consumers' credit reports.
The CEOS of the three credit bureaus said in a statement the move is “another step we’re taking together to help people across the United States focus on their financial and personal wellbeing.”
According to a recent Kaiser Family Foundation report, nearly 1 in 10 adults – 23 million people – owe significant medical debt. In a separate report, the Consumer Financial Protection Bureau stated that 43 million people had medical bills on their credit report amounting to $88 billion. The burden only worsened during the COVID-19 pandemic as medical expenses were incurred and individuals were unable to work or were unemployed.
How Does Medical Collection Debt Currently Impact Your Credit Report?
Unpaid medical debt normally is transferred to a collection agency after 60 to 120 days of delinquency. The main credit bureaus then extend a 180-day grace period for consumers to address this debt before adding it to their credit report as a collections account, which negatively impacts your credit score. Currently, both paid and unpaid medical collections stay on your credit record for seven years after being reported.
Having a debt go to collection can drop your credit score significantly; and it becomes worse the longer the debit goes unpaid. In other words, your credit score will drop even more if a bill has gone unpaid for 200 days versus 60 days.
What Medical Debt will be Removed?
Beginning this summer, medical collection accounts that have been paid off will no longer be reported. In addition, any new unpaid medical debts will only appear after a full year of being sent to collection, instead of the current six months.
Then, during the first quarter of 2023, medical accounts under $500 will also no longer appear on credit reports.
According to the credit bureaus, these actions will remove almost 70% of medical debt listed on credit reports, which is a significant relief for those struggling with medical debt. It’s also a major benefit for individuals who have taken measures to pay their debt, yet the collection action lingers on their credit report preventing them from getting financing, like buying a home or car.
What Medical Debt Won’t Be Covered?
While these actions are welcomed by consumers, the changes won’t eliminate medical debt from reports entirely. Unpaid medical debt that exceeds $500 and has been owed for more than a year will still appear on credit reports.
In addition, the changes don’t apply to medical costs that consumers put on their credit card or paid by getting a loan. Once the expense is paid after acquiring a loan or is placed on your credit card, it is no longer a medical debt.
Consumers are Still Responsible for Their Debt
Although certain types of medical debts will be removed from credit reports, consumers are still responsible for repaying what they owe. Creditors can also continue collection activities, like suing you for the balance or contacting you for repayment.
While removing the debt from your credit report can potentially improve your credit score, you still need to work out an arrangement to pay your debt. By contacting your healthcare provider, you may be able to negotiate a reasonable repayment agreement. Most major healthcare providers also have hardship programs, which may result in partial debt forgiveness or lower payments. They can also help eligible consumers by connecting them to state medical assistance programs.
Money Matters: Learn More About Important Financial Topics
Your trusted, one-stop source for financial education resources is First National Bank’s FNB U, a cutting-edge digital learning resource. It’s offered to anyone FREE of charge! Individuals who use the course are empowered with the tools and skills they need for financial success now and in the future
- credit report
- credit score