Personal Finance

Changes to medical debt reporting could improve your credit score

The three nationwide credit reporting agencies — Equifax, Experian and TransUnion — began removing paid medical debts from consumers' reports.

Person checks their credit score.
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According to a 2022 Kaiser Family Foundation analysis of Census Bureau data, 23 million people — nearly 1 in 10 adults — carry significant medical debt. In addition, a report by the Consumer Financial Protection Bureau (CFPB) showed that as of June 2021, approximately 43 million people had medical bills on their credit reports.

While medical providers don’t usually report to the credit bureaus, unpaid debts are frequently turned over to collection agencies. The report estimates that 58% of the debt in the collections process and on people’s credit reports is from medical bills. This can affect credit scores.

However, changes to medical collection debt included on credit reports began to take effect last year and are continuing in 2023.

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On July 1, 2022, the three nationwide credit reporting agencies — Equifax, Experian and TransUnion — began removing paid medical debts from consumers’ reports.

“For some people, it could lift their credit score 100 points or more, somebody who otherwise had really good credit and is dragged down by this one instance of medical debt,” Ted Rossman, Bankrate.com senior industry analyst, told Yahoo Finance Live.

In addition, unpaid medical collection debts will not appear until a year after non-payment, providing people with more time to address them.

Finally, during the first half of this year, all medical collection debt with an initially reported balance of less than $500 will be removed from credit reports.

The changes follow the CFPB analysis reporting that a lack of transparency in the system can cause confusion about medical billing.

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“Even when a patient tries to battle to get an accurate bill, or an insurance claim paid, medical debt collectors have a weapon that is hard to fight against: the credit report,” Rohit Chopra, director of the CFPB, said in a statement. “I am concerned that the credit reporting system is being weaponized as a tool of coercion to get people to pay medical bills they may not even owe.”

While this is good news for many, it doesn’t eliminate those debts or remove all medical debt from credit reports. Most of those affected will see only limited benefits.

There are several steps you can take if you have unpaid medical bills. For instance, double-check your health care coverage to ensure your insurance provider has paid for everything it is responsible for. Then, request an itemized bill and an internal audit. Next, appeal any claims that your insurance has denied. Finally, try to set up a payment plan you can afford.