Most medical collection debt is about to disappear from consumer credit reports
A significant number of U.S. consumers will have their medical collection debt removed from their credit reports, the nation’s top credit bureaus announced on Friday.
Equifax, TransUnion and Experian said in a joint statement they would eliminate nearly 70% of debt after months of industry research showed that about two-thirds of this type of debt is the result of medical expenses. occasional or short-term resulting from an “acute medical need”, a Press release noted.
“After two years of the Covid-19 pandemic and a detailed examination of the prevalence of medical collection debt on credit reports, NCRA is making changes to help people focus on their personal well-being and recovery. “, said the agencies, referring to themselves. with an abbreviation for “national credit reference agencies”.
Effective July 1, paid medical debt will no longer be included in consumer credit reports. The credit bureaus also announced that in the first half of 2023, medical debt under $500 will not be added to consumer credit reports.
Additionally, the time period before unpaid medical collection debt appears on a credit report will be increased from six months to one year. This change is intended to give consumers more time to work with their insurance and medical providers to pay off the debt.
a february report by the Consumer Financial Protection Bureau found that medical debt collections were “less predictive of future payment problems than other debt collections”, such as auto loans and mortgages.
The report also indicates that black, Hispanic and low-income people are more likely to have medical debt. The elderly and veterans are also heavily affected, according to the report.
The CFPB wrote that because of this, these groups “could be more heavily impacted by outdated credit models,” affecting their chances of securing housing, car loans and insurance.
Ted Rossman, a senior industry analyst at Bankrate, told CNBC that removing paid medical debt from credit reports could help consumers boost their credit scores, especially for older FICO models used to obtain federally backed mortgages.
“There seems to be a recognition that medical care is essential and shouldn’t be penalized by the credit bureaus,” Rossman said.