About 18% of Americans have delinquent medical bills on their credit reports, and collection accounts held $140 billion in medical debt during 2020, according to a recent study. And a majority of those who struggle to pay medical bills have health insurance, another report shows. However, there’s good news: Starting this summer, much of that medical debt will no longer appear on credit reports.
If past medical debts have been affecting your credit score, you may see changes soon. On July 1, 2022, the three major credit bureaus will change the way they report medical debt.
For starters, paid medical collection debt will no longer be included on consumer credit reports. Equifax, Experian and TransUnion will delete nearly 70% of medical collections debt tradelines from consumer credit reports by July 1, 2022. Also, they will no longer add new, unpaid medical collection tradelines to credit reports until those debts are more than one year old. Starting in 2023, the bureaus will no longer include medical collections under $500 on consumer credit reports.
These changes are important because collection accounts can damage a credit score even after the debt has been paid or settled.
Here’s a look at why these changes are happening and how they might affect your credit reports and scores.
Why Does Medical Debt Matter?
In the United States, about 23 million people (almost one in 10) owe significant medical debt, according to a recent study. This includes 11 million people who owe more than $2,000 and 3 million people who owe more than $10,000. Overall, U.S. adults owe at least $195 billion in medical debt. Many of those with outstanding medical debt have health insurance, but high deductibles and other out-of-pocket costs add up when they need to access healthcare.
Any type of debt can become financially crippling, but spending on healthcare is usually a necessity rather than a luxury. And for many people, medical debt can lead to difficult financial situations. For example, people with medical debt report cutting spending on food, clothing, and other household items; spending their savings to pay for medical bills; borrowing money from friends or family members; and taking on additional debts to cover medical bills, according to Kaiser Family Foundation.
Why Are the Bureaus Changing Medical Debt Reporting?
Even when medical bills are paid off, if they have been sent to collections, those debts will continue to have an impact on a person’s credit reports for a number of years. That’s because collections can stay on your credit report for seven years.
With most types of debt, a person who has an account go to collections is more likely to default on future debts. However, that’s not the case with medical debt, according to analysis by the Consumer Financial Protection Bureau.
Why don’t unpaid medical bills reflect the same type of consumer behavior as unpaid cell phone bills or credit card bills? First, medical debts are billed differently. For example, a medical bill may have to go through an insurance company first and the consumer may not receive it for weeks or months, and bills may come from several different providers for the same hospital stay or procedure, and medical billing errors are common. In addition, overspending on a credit card can reflect a lack of self-control, but spending on healthcare may be a matter of life or death.
Because unpaid medical debt and medical collections are not able to predict future credit issues in the same way as other unpaid debts, the credit bureaus are changing the way they report medical debts.
Will Your Credit Score Change?
If you have medical debt or medical collections on your credit report, the new reporting changes may affect your score. The impact to your score will depend on how long the medical debt or collections have been on your report, as well as the other items that are on your report.
For example, if you have medical debts removed from your credit report but you still have late payments, charge-offs, non-medical collections, or other negative items on your report, your scores may not change significantly.
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