By Sheila Phillips: For Complete Post, Click Here…
Your credit score controls much of how you interact with the financial world around you. When thinking of your credit, you probably think of credit cards or identity fraud or the interest rate on a loan recently taken out. Medical debt has been negatively affecting credit scores for years. It is a well-documented and pervasive issue for people across the country. According to a CFPB report released earlier this year, 20% of US households report having medical debt, with other recent investigations showing the extent of medical and dental debt is far more extensive than previously thought. Eighty-eight billion dollars ($88B) in medical debt was on consumer credit records, accounting for 58% of all collections tradelines as of June 2021. This makes it the largest portion of tradelines in collections, above credit cards and student loans, with the majority of these bills being under $500. But as of July 1, that changed! The three largest nationwide credit reporting agencies (NCRAs) announced they are changing the way medical debt is reported. This should have a positive effect on millions of people’s credit scores, particularly people of color, those in poor health, and people living with disabilities, who disproportionately bear the burden of medical debt. While this is only one aspect of the larger medical debt crisis in the US, this is a good first step to lessening the burden and eventually preventing it altogether.
What are the credit reporting agencies doing?
In March, the three main nationwide credit reporting agencies – Equifax, Experian and TransUnion – released a statement announcing a change in the way medical debt will be reported on credit reports. This announcement came shortly after the CFPB said it would be examining whether it is appropriate for medical debt to appear on people’s credit reports at all. As of July 1, 2022, all paid medical debt will be removed from credit reports. The time period that it will take for a medical debt to be placed onto a credit report will also increase from 6 months to a full year after the initial invoice. Then in the first half of 2023, all medical bills less than $500 will be removed and no longer reported on credit reports.
Some newer, but less widely used models, weigh medical debt less than the NCRAs, and can result in as much as a 25-point increase in score. While there are not yet reports of exact outcomes from this action by the NCRAs, they expect that these changes will remove nearly 70% of medical debt from credit reports, positively affecting millions of scores.