The three major credit reporting agencies announced Friday that they will strip 70% of medical debt information out of consumers’ credit reports, starting July 2022.
The bureaus — Equifax, TransUnion, and Experian — say that medical collection debt will no longer appear on credit reports if that debt has already been paid. The agencies are also increasing how long it takes for that debt to appear on a consumer’s report, from six months to one year. And starting sometime in the “first half of next year,” they will also remove unpaid medical collection debt from reports if it’s less than $500.
One of the agencies’ regulators, the Consumer Financial Protection Bureau (CFPB), had been considering a ban on medical debt before these changes were announced.
As of the second quarter of 2021, 58% of bills that were in collections and on people’s credit records were medical bills, according to a recently published CFPB report on medical debt. But the report also found that medical debt collections were “less predictive of future payment problems than other debt collections,” like mortgages or car loans.
Nearly 1 in 10 Americans carry medical debt over $250, according to a recent Kaiser Family Foundation study. And people of color are disproportionately affected by medical collection debt, a recent National Consumer Law Center report found.
How Changes Will Affect Client’s Scores
Medical debt is not included as part of your client’s credit report if it remains with their original service provider, but once it goes to collections it likely affects their credit score. These debts can linger on a credit report for up to seven years, although the new rule will now remove them if they are paid off.
An instance of collection debt in a credit report can decrease a credit score by as much as 110 points. The credit score is what lenders use to determine whether you’ll qualify for loans, as well as the rate of interest on those loans.
Already, some of the newer FICO and VantageScore algorithms disregard paid medical collections and place a lower emphasis on unpaid medical debt compared to other types of debt, Ted Rossman, a senior industry analyst at Bankrate, said in a statement.
“The CFPB has been poking around this issue even further, and that seems to have encouraged the credit bureaus to completely remove paid medical collections from all credit reports,” said Rossman.
This removal will help people who have paid medical collection debt increase their credit scores, especially for older FICO models that are required for federally-backed mortgages.
“There seems to be an acknowledgment that medical care is essential and should not be penalized by the credit bureaus,” Rossman said.
The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Very Vintage Vegas does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Very Vintage Vegas, will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.