Credit bureaus are changing the way they report medical debt

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Americans who racked up debt due to COVID-19 should see score improvement

The three credit reporting agencies – Experian, Equifax, and TransUnion – have announced a change to consumers’ credit reports. All three companies will change the way they report medical debt collection.

If medical debt has been turned over to collections but is later repaid, the debt will be removed from the consumer's credit report. Under current practices, it remains as part of the consumer's credit history.

According to the Kaiser Family Foundation, two-thirds of medical debts are the result of a one-time or short-term medical expense arising from an emergency or sudden medical need. After two years of the COVID-19 pandemic and a detailed review of the prevalence of medical collection debt on credit reports, the credit agencies said they are making changes to help people focus on their personal wellbeing and recovery.

“Medical collections debt often arises from unforeseen medical circumstances. These changes are another step we’re taking together to help people across the United States focus on their financial and personal wellbeing,” said Mark W. Begor, CEO Equifax; Brian Cassin, CEO Experian; and Chris Cartwright, CEO TransUnion, in a joint statement. “As an industry, we remain committed to helping drive fair and affordable access to credit for all consumers.”

Widespread issue among consumers

An analysis of reviews posted at ConsumerAffairs shows that medical bills are a persistent source of financial trouble and a major drag on credit scores. In a review of Credit One Bank, Melissa, of Millsboro, Del., told us she was unhappy with the bank’s credit card because of an annual fee. However, she knew canceling it would harm her already damaged credit.

“Unfortunately, my credit is just being rebuilt because of medical bills and I have no choice but to pay the fee and keep the card for now,” she wrote in her review.

Shasta, of SeaTac, Wash., said she was in the same situation when she was unable to raise the limit on her Citi card because her previous 800-plus credit score was in a downward spiral.

“This was also the score range I maintained before losing my job and incurring medical bills beyond my ability to re-pay, resulting in being forced into bankruptcy,” Shasta told us.

Effective July 1

The change in credit reporting at all three agencies will go into effect on July 1, 2022. After that date, paid medical collection debt will no longer be included on consumer credit reports. 

The credit bureaus say they are also taking an additional step. The time period before unpaid medical collection debt would appear on a consumer’s report will now be increased from six months to one year to give them more time to work with insurance and/or health care providers to address their debt before it is reported on their credit file. 

In the first half of 2023, Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports.

The Consumer Financial Protection Bureau (CFPB) has been critical of the way credit agencies have reported consumers’ medical debt, noting that millions of Americans have unexpectedly been hospitalized for COVID-19 and are taking on debt while they receive needed care. 

CFPB research has shown that Americans have accumulated at least $88 billion in medical bills since June, making medical debt the most common entry on credit credits. Independent research has also shown that medical debt is a major contributor to bankruptcy.

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