Credit Bureaus To Ax 70% of Medical Debt From Reports

Unpaid Debt Won’t Hurt Borrowers As Much

Doctor With Patient
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If you are one of tens of millions of Americans with overdue medical debt, there’s some good news ahead. Soon, that debt will be far less likely to hurt you when you apply for credit, an apartment, or a job.

Key Takeaways

  • The three major credit bureaus plan to remove nearly 70% of medical debt from credit reports.
  • Removing the debt could help people who have struggled with unexpected medical expenses improve their credit scores and in turn, their chances of getting a loan or a job.
  • Debt owed to a hospital, doctor, or other healthcare provider is the most common type of debt on a credit report but doesn’t accurately reflect someone’s willingness or ability to pay other bills, research shows.

The three major credit bureaus announced a series of policy changes Friday impacting the credit scores of those who have struggled to pay what are often unexpected medical bills: Starting this July, TransUnion, Experian, and Equifax will remove from their credit reports any mention of medical debt that went to a debt collector but was subsequently paid—a big change from the status quo, where those debts can haunt you for up to seven years.

Plus, the bureaus plan to double the amount of time before medical debt collections appear on credit reports, from six months to one year. Then in the first half of 2023, they will stop including that debt on reports at all if it's under $500, including when there are multiple debts that small that add up to far more.

Debt owed to a hospital, doctor, or other healthcare provider is the most common type of debt on a credit report, amounting to some $88 billion in the U.S. as of June 2021, according to the Consumer Financial Protection Bureau (CFPB). The changes announced Friday, just a few weeks after the CFPB released a 53-page study on the burden of medical debt, will remove nearly 70% of all medical debt from credit reports, the bureaus said. 

“This change is going to benefit a lot of consumers in a significant way,” said Jenifer Bosco, a staff attorney at the National Consumer Law Center, a consumer advocacy group. “They won't be penalized by a medical debt that might be completely out of their control.”

Unpaid medical bills hurt consumers more than they should, according to the CFPB, because they don’t accurately reflect someone’s willingness or ability to pay other bills. Unlike other types of debt, medical bills are often the result of unexpected one-time expenses and don’t give a true picture of spending and repayment habits. A 2014 study by the CFPB found that medical debt caused credit scores to underestimate true creditworthiness by 16 to 22 points.

Having past-due debt on your credit report can hurt your ability to take out loans, rent a home, or even get a job. While 62% of all medical debts in collections were under $490 in 2020, patients often have multiple medical debts that can add up to far more, according to the recent CFPB research.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Correction - March 18, 2022: This article has been corrected after an earlier version mistakenly referred to credit scores instead of credit reports. The credit bureaus will remove overdue medical debts of under $500 from credit reports, which will in turn impact credit scores.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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