Medical debt is a problem that many consumers face. This includes those with health insurance — and in some cases, decent insurance.
The problem with medical debt, however, is that it can hurt consumers from a credit report perspective. On the one hand, consumers generally bill medical bills on credit card and aim to pay them back over time. But too large a credit card balance could lead to credit score damage.
Additionally, medical debt typically shows up on consumer credit reports once collection agencies need to get involved. And that reflects badly on consumers, making it harder for them to borrow when they need it.
But soon, that might not be a problem anymore. The Three Majors credit bureaus just announced a positive change in how they include medical debt in credit reports.
Farewell, medical debt
In a joint statement, Equifax, Experian and TransUnion, the nation’s leading news bureaus, recently announced that they would remove nearly 70% of medical debt collection accounts from consumer credit reports. The change is the result of years of research and is expected to go into effect this summer.
Starting July 1, medical debts that have been sent to collection agencies and ultimately paid off will no longer have a place in consumer credit reports. Previously, these debts could last up to seven years, even once settled.
Consumers will also get a one-year reprieve before unpaid medical debts appear on credit reports after being sent to collection agencies. It’s more than a six-month reprieve now. The purpose of this extension is to give consumers more time to work with their health insurance companies, negotiate with their providers, or simply keep up to date with their accounts.
Additionally, beginning in the first half of 2023, Equifax, Experian, and TransUnion will stop including medical debts on credit reports that are in collection but less than $500.
A positive change for credit reports
Even consumers who manage their money well and stick to a budget can end up with medical debt. Falling behind on this debt often results in damage to credit rating. Once that happens, borrowing for just about any purpose becomes more difficult.
From now on, those who have paid medical debt, or whose level is low, should not have to worry about a negative impact on their credit. And it could save many consumers a world of stress and heartache.
Recently, the Consumer Financial Protection Bureau reported that Americans had $88 billion in medical debt listed on their credit reports as of June 2021. However, the agency also found that most of these individual debts were under $500. . The aforementioned change could really save most consumers from being negatively affected by medical debt from a borrowing perspective.
Of course, it always pays off for consumers to do what they can to avoid medical debt in the first place. This includes saving money for healthcare expenses, carefully reviewing bills for errors, and negotiating with providers in situations where insurance companies won’t take note. But the fact that the credit bureaus are becoming more lenient with medical debt reporting is definitely a good thing.
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