Most Medical Debt Will be Removed from Your Credit Score

Medical debt can damage the credit ratings of any consumer. However, research indicates that medical debit is less predictive of a person’s ability to repay than other kinds of loans. To help provide relief to Americans who are dealing with the negative consequences of past-due medical debts, three major reporting agencies – Equifax, Experian and TransUnion – are changing their reporting methods.

Under the current system, medical debt collections that appear on an individual’s credit report can negatively impact their ability to buy or rent a home, qualify for insurance, open a bank account or find employment. Even medical bills that were paid in full after being sent to collections could remain on a consumer’s credit report for up to seven years.

Starting in July, all three agencies will remove approximately 70 percent of medical collection debt from credit reports, as well as double the grace period (from six months to a year) before unpaid debt will appear on a person’s credit report. In addition, unpaid medical debt of less than $500 will no longer show up on reports in the first half of 2023.

According to a report released by the Consumer financial Protection Bureau (CFPB), approximately 20 percent of U.S. households experience medical debt. Black and Hispanic people, and young adults and low-income individuals of all races and ethnicities, are more likely to have medical debt than the national average. Older adults and veterans are also heavily impacted. As a result, these populations may suffer more negative consequences from outdated credit models that overestimate the predictiveness of medical debt.

In addition, medical billing and collections practices can be confusing and difficult to navigate to vulnerable communities. Prices for the same services are usually higher for uninsured and out-of-network patients than for in-network patients. Even in-network prices can vary substantially between different facilities or different departments.

After billing, providers often send unpaid accounts to third-party collections agencies. These agencies have little access to providers’ records, which can make it difficult for people to confirm the medical debts reported to collectors are valid and accurate. Once medical bills enter collections, they are often reported to consumer reporting companies. When someone uses a credit card to pay off an expensive medical bill, then struggles to pay off the balance afterward, it can still lower their credit scores dramatically.

Medical debt can also lead people to avoid medical care, develop physical and mental health problems, and face adverse financial consequences like lawsuits, wage and bank account garnishment, home liens and bankruptcy. Given the widespread impact of COVID-19, addressing medical debt is an urgent national priority.

While this announcement provides relief for millions of Americans that are battling an estimated $88 billion in medical debit, it is important to keep in mind the announcement does not remove a person’s responsibility to pay the debit. It may be helpful to consult a financial expert on ways to start paying down your medical debt today.


Pacific Federal is a Zenith American company and subsidiary of Harbour Benefit Holdings, Inc.