Exciting news on the horizon! The Biden and Harris Administration plan to implement a new rule that may prevent medical debts from affecting credit scores.
Research conducted by the CFPB revealed that a staggering 15 million Americans have medical debt listed on their credit reports. These outstanding bills often result in lower credit scores, making it challenging for individuals to make significant purchases like homes or cars.
Most impacted individuals come from low-income areas in the southern region. Recent studies in 2022 showed a spike in the average medical debt from $2,000 to $3,100. Consequently, major credit agencies have started taking steps to reduce the impact of unpaid medical expenses on credit scores.
According to our findings, having medical debt on a credit report doesn’t predict how well someone will handle other types of loans. Chopra emphasized that the current practice unfairly damages people’s credit scores.
In a report in April 2024, CFPB noted a decrease in the number of Americans with medical debts in collection on their credit files. By June 2023, only about five percent of individuals had unpaid medical bills on their credit reports, down from 14 percent in March 2022.
CFPB announced in 2023 their commitment to making changes that would help Americans boost their credit scores, end forceful debt collection practices, and rectify inaccurate credit information.
While medical bills have no bearing on creditworthiness, millions of American families are burdened with medical debt on their credit reports. “When someone is unwell, their focus should be on healing, not wrangling with debt collectors over unjust bills,” said Chopra during the announcement.
Major bureaus like TransUnion, Experian, and Equifax currently exclude certain medical debts when calculating credit scores. These exceptions apply only to settled medical debts, which still appear on credit reports. Additionally, these bureaus have extended the period before medical bills in collections impact credit reports, from 180 days to a year.
Starting in 2022, these agencies will cease reporting medical debts below $500. Hence, in recent times, remaining reported debts have mostly been bills exceeding $3,000.
Chopra mentioned, “Experian, Equifax, and TransUnion have taken steps to remove numerous medical bills from credit reports, recognizing their limited predictive value.” Our recent research findings underscore the importance of these changes.