Medical Debts Are Being Deleted From Credit Reports

Medical Debts Are Being Deleted From Credit Reports: What This Means for Consumers

Medical debt is a huge problem in the United States, with an estimated $88 billion in overdue medical bills owed by American consumers. This debt can have major consequences, hurting people’s credit scores and making it harder to get loans, mortgages, credit cards, and even jobs or housing.But there’s some good news – the three major credit bureaus are now taking steps to remove medical debt from credit reports, which will help millions of Americans. Here’s what consumers need to know:

Paid Medical Debts Will Be Removed from Credit Reports Starting July 1, 2022

Up until now, if you had a medical debt that went to collections but you eventually paid it off, it could still show up on your credit report as a negative mark for up to 7 years. But starting July 1, 2022, the three major credit bureaus – Equifax, Experian, and TransUnion – will no longer include paid medical collection debt on credit reports.This change will be retroactive, so any paid medical debts that are currently on your report will be removed. This is expected to help millions of consumers by eliminating negative marks for bills they paid off.

Time Period for Unpaid Medical Debts Increased to One Year

In addition to removing paid debts, the credit bureaus are also increasing the time period before unpaid medical debts appear on your credit report.Previously, if an unpaid medical bill was sent to collections, it could show up on your credit report after 6 months. But now, medical providers and collectors must wait one full year before reporting unpaid medical debts to the credit bureaus.This gives consumers more time to work with insurance companies and healthcare providers to resolve billing issues and errors before it impacts their credit.

Medical Debts Under $500 Will Not Be Added to Credit Reports Starting 2023

Further helping consumers, Equifax, Experian, and TransUnion announced that starting in early 2023, they will no longer include medical debts under $500 on credit reports.Small medical debts of less than $500 will be excluded from credit reports altogether. This change is expected to remove nearly 70% of medical collection accounts, since a majority of medical debts fall under this threshold.

Why Are Credit Bureaus Making These Changes?

These changes are part of a larger Biden administration initiative to reduce the impact of medical debt on consumers’ financial lives.The Consumer Financial Protection Bureau (CFPB) has been pushing for credit reporting reforms, citing research showing medical debts are less predictive of creditworthiness than other types of debts. The CFPB says medical billing can be overly complex and lead to errors, and patients shouldn’t face long-term credit damage for unavoidable medical care.In response to this push, the nationwide credit bureaus worked with the CFPB and healthcare providers to update their medical debt credit reporting policies.

Who Will These Changes Help the Most?

• Anyone with paid medical debts on their credit report: Removing paid collection accounts will help increase credit scores for millions of consumers. This is especially impactful for low-income families or those with chronic health conditions, who may have accumulated multiple paid medical debts over time.
• Those with smaller medical bills: Excluding debts under $500 will prevent minor medical bills from ever hurting someone’s credit. Small bills that go unpaid are often due to insurance disputes or billing errors versus an inability to pay.
• Patients needing urgent or emergency care: The 1-year waiting period before reporting unpaid debt gives patients more time to work out billing issues for emergency treatments and procedures that were unavoidable.
• Low-income patients and the uninsured: Low-income households and those without insurance are more likely to struggle with medical debt and collection actions. These changes will help protect their credit standing.

How Consumers Can Take Action on Medical Debt

If you currently have medical debts that are hurting your credit, here are some steps you can take:

• Check your credit reports: Get free weekly credit reports from AnnualCreditReport.com and review all medical debts. Dispute any errors.
• Negotiate with providers: Contact them directly to negotiate bills and set up payment plans. Non-profit groups like RIP Medical Debt may also be able to negotiate on your behalf.
• Look into financial assistance: Many providers offer charity care or sliding scale options for low-income patients. Ask billing offices about applying.
• Consider debt consolidation: Personal loans can roll multiple medical debts into one monthly payment. This gets accounts out of collections.
• Know your rights: It’s illegal for collectors to harass you over medical debts. Learn how to stop calls and protect yourself.
• Submit complaints: If credit bureaus don’t fix errors on your report, submit a complaint to the CFPB.

Ongoing Efforts to Reform Medical Debt Policies

While the credit bureau policy changes are a great start, consumer advocates say more work is needed to protect patients from medical debt.Federal and state governments are looking at additional reforms, including:

• Extending the 1-year waiting period before medical debts can be reported
• Requiring credit bureaus to remove medical debt after it’s paid
• Stopping the collection of medical debts within a certain time period
• Capping how much interest can be charged on medical debts

Non-profit organizations are also pushing for hospitals and medical providers to offer more generous financial assistance and limit aggressive collection tactics.There’s growing consensus that patients shouldn’t face long-term credit damage, lawsuits, wage garnishment, and other collection actions over medical treatment.

The Takeaway for Consumers

The bottom line is that changes are coming in July 2022 and 2023 that will help millions of Americans by removing paid medical debts from credit reports and limiting the reporting of new medical debts.Consumers dealing with past-due medical bills shouldn’t panic. There are more options and protections now to guard your credit standing while working through issues with insurers and healthcare providers.Be proactive by checking your credit reports frequently and disputing any errors. If you have outstanding medical bills, act quickly to negotiate with billing offices and find financial assistance programs.While more work is needed, these new policies from the credit bureaus and advocacy by the CFPB are a big step towards fixing the medical debt crisis and giving consumers relief.