Some 23 million people -- or nearly 1 in 10 adults -- owe significant medical debt, according to a recent Kaiser Family Foundation report. As of last June, 43 million people in the US had medical bills on their amounting to $88 billion, noted in a report by the Consumer Financial Protection Bureau. The burden became worse during the COVID-19 pandemic, as unemployment numbers grew and the virus put an additional strain on medical care and consumer costs.
Equifax, Experian and TransUnion -- the three major credit bureaus -- said they soon plan to remove nearly 70% of medical collection debt from consumer credit reports. Starting July 1, paid medical collections debt will be removed from credit reports. In addition, the credit agencies will give consumers a year to address any outstanding balances before it becomes part of their credit file. In the first half of 2023, the credit bureaus plan to remove and no longer report medical collections debt under $500.
The CEOs of Equifax, Experian and TransUnion said in a statement that the move is "another step we're taking together to help people across the United States focus on their financial and personal wellbeing."
The CFPB has said it's examining how the credit bureaus use medical debt on their reports and whether it's appropriate for unpaid medical billing data to be included on credit reports. "Certain populations are more likely to incur medical debt," the CFPB noted in a report (PDF). This includes lower-income individuals, Black people, veterans, young adults and older Americans.
We'll explain what you need to know, including when the agencies will remove the debt and who's affected. We'll update this story regularly.
How does medical collection debt currently impact credit reports?
Unpaid medical debt is usually handed over to a collection agency after 60 to 120 days of delinquency. From there, the main credit bureaus typically extend a 180-day grace period for consumers to address this debt -- that is, negotiate with insurance or the collections agency -- before adding it to a credit report as a collections account, which negatively impacts your credit score.
As of now, paid and unpaid medical collections debt generally stays on your credit record for seven years after being reported.
When will paid medical collection debt be removed?
Starting July 1, paid medical collection debt will no longer be included on consumer credit reports for the three credit reporting agencies. As part of the recently announced measures, Equifax, Experian and TransUnion will also extend the grace period given to consumers to either pay or arrange a plan to cover medical debt. Instead of 180 days, the time will be extended to one year.
Another change will also go into effect in the first half of 2023. Equifax, Experian and TransUnion have said that any medical collection debt below $500 will no longer be included on credit reports. Most medical collection debt on credit reports is under $500, according to the CFPB (PDF).
How will all this affect my credit score?
Having a debt go to collections can drop your credit score significantly -- and it gets worse the longer it hasn't been paid. For instance, your credit score is likely to drop more if a bill has gone unpaid for 150 days versus 30 days. Once a collection has been removed from your credit report, you could see a positive change in your credit score.
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