Past medical debt won’t hit your credit score anymore, according to all three major credit reporting agencies.
Around $88 billion in medical debt was listed on consumer credit reports as of July last year, according to a report by the Consumer Financial Protection Bureau. This is known to be a large under-estimation of medical debt, since debt is not always reported to the credit reporting agencies, or is reported in another form, such as credit card debt or defaulted loans. It is the most common form of debt reported to these agencies, making up 58% of all reported debts. Once a debt has been reported to the credit agencies, even paying it off doesn’t remove it as a black mark against you for seven years.
The CFPB’s report heavily criticized the factoring-in of medical debt into credit reporting, because it’s a bad barometer of someone’s reliability to repay loans, which is the purpose of credit reports. Medical debt is usually in the form of unexpected large amounts, while loans are scheduled and set to be repaid in small amounts. It’s also more likely to be inaccurately reported, due to the complicated nature of medical billing.
The CFPB, which is a branch of the government, warned the consumer credit reporting agencies that they would take action to ensure credit scores not be used as a coercive tool to make patients pay “questionable medical bills.”
The report also came only a few months after the CFPB warned Equifax, Experion, and Transunion that they are in danger of violating the Fair Credit Reporting Act. The violation is over too little being done in response to complaints about inaccurate credit reporting.
Friday, all three agencies reported that they would be removing any paid medical collection debt from credit scores by July. They will also change their policies about what debt can be reported – medical debt will have to be a year overdue before it can be reported, the amount must be over $500, and the creditor must have offered a payment plan.