Medical debt and credit scores: How new rules ease the pain

Medical debt is now as American as apple pie — more than half of U.S. adults say they’ve gone into debt from medical or dental bills in the past five years, according to a new Kaiser Family Foundation survey. A quarter of these adults owe more than $5,000, and nearly 20% say they don’t expect to pay their medical debt at all.

While the medical debt situation looks bleak, there is a small bright spot for those with late medical bill payments that have hurt them. credit scores. As of July 1, the three major credit bureaus — Equifax, Experian and TransUnion — will remove all paid medical collection debts from their credit reports. In their March 2022 announcement, bureaus noted that this rule change removes 70% of medical collection debt from consumer credit scores. Previously, collections were kept on file for seven years, regardless of whether or not the debt was paid.

Besides canceling paid medical collection debts, credit agencies will now give Americans one year to process outstanding medical bills before adding them to their credit reports. Also, in the first half of 2023, the credit bureaus plan to eliminate and stop reporting all medical group debts under $500.

The Consumer Financial Protection Bureau said it is studying how credit bureaus use medical debt in their reports and whether it is appropriate to include unpaid medical billing data in credit reports. “Some residents are more likely to incur medical debt,” the CFPB noted in a report (PDF). This population includes low-income individuals, blacks, veterans, young adults, and older Americans.

We’ll explain what you need to know about changes to medical debt reports, including how you can confirm that paid medical collection debts are removed from your credit reports.


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How does unpaid medical debt now affect credit reports?

Unpaid medical debts are usually handed over to a collection agency 60 to 120 days after the payment is overdue. From there, major credit bureaus will now extend a one-year grace period for consumers to process the debt — either pay in full or negotiate with insurance or a collection agency — before adding it to a credit report as a collection account.

Prior to July 1, the old grace period was about half a year, or 180 days, and all groups would remain on consumer credit reports for seven years. The new rule changes mean that paid medical collection debts will be removed from credit scores, although unpaid medical collection debts will remain on your credit history for seven years.

When was the medical collection debt paid off from the credit reports?

As of July 1, paid medical collection debts must not be included in the consumer credit reports of the three credit reporting agencies. The US Public Interest Research Group encourages Americans with previous medical debt collections to check their reports to ensure that the paid debts are removed.

Another change will also take effect in the first half of 2023. Equifax, Experian and TransUnion said any medical collection debt less than $500 will no longer be included in credit reports. Most medical collection debts on credit reports are under $500, according to the CFPB (PDF).

How can I make sure that my paid medical debts are written off my credit report?

The three major credit bureaus offer free weekly credit reports online from the start covid-19 pandemic. You can get your credit report weekly at AnnualCreditReport.com. (Before offices began offering free weekly reports, Americans were allowed one free credit report per year.)

Once you download your reports, look carefully at each to find any collection notices for paid medical debt. Specifically look for sections labeled “Groups” or “Account Information”.

If you find that paid medical debt is still clouding your credit score, you will need to dispute any items with each of the credit bureaus separately. Follow the links below to each dispute resolution page.

How will these changes affect my credit score?

Transferring a debt to collections can dramatically lower your credit score — and it gets worse the longer you don’t pay it off. For example, your credit score is more likely to drop more if the bill is not paid for 150 days versus 30 days.

Once you remove a set of your reports, you can see a positive change in your credit score. The effect on your credit score depends on the number of collection accounts you have. If your single collection account is removed from your report, your score could rise by as much as 150 points, according to credit repair company Credit Glory.

For more financial information, here’s a file Best Credit Monitoring Services. Also, here How can you save money on gas pump And the while shopping.

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