Medical debt will be removed from credit reports: What this means for Americans

Biden administration A new rule was finalized this week that bars medical debt from being included in credit reports, as well as barring lenders from using certain medical information in loan decisions.

This is set to provide relief to millions of Americans whose credit reports or scores have been verified It is negatively affected by unpaid medical bills. In context, about 46 million people had medical debt included in their reports in 2020, according to the administration.

Here’s what this rule means for Americans:

When it goes into effect, 60 days after it is published in the Federal Register, it will be worth $49 billion Unpaid medical bills It will be removed from the credit reports of 15 million Americans, according to the Consumer Financial Protection Bureau (CFPB).

Health care is expensive and frustrating; Government involvement is a big driver

This will ensure patients are not denied access to credit for mortgages, auto loans or small business loans, the administration said.

The CFPB expects about 22,000 additional affordable mortgages will be approved each year once the rule goes into effect.

Americans who currently have medical debt on their credit reports could also see their credit scores rise by an average of 20 points, according to the CFPB.

The new rule will also prevent debt collectors from taking advantage of the credit reporting system to pressure people to pay bills they don’t owe.

15 million Americans are still affected by medical debt despite credit agency changes

Previously, creditors were allowed to look into medical debt, which enabled “debt collectors to use the credit reporting system to force patients to pay for inaccurate or false medical bills,” according to the CFPB.

CFPB’s new rule setting guardrails for credit reporting companies:

Prevents lenders from considering medical information

Creditors will no longer be able to use certain medical information to make lending decisions. This means lenders will also be prohibited from using information about medical devices, such as prosthetics, to require the devices to serve as collateral for a loan for repossession purposes.

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Medical debt is prohibited on credit reports

Consumer reporting agencies will be prohibited from including medical debt information in credit reports and credit scores sent to lenders. This will help end the practice of using the credit reporting system to force bills to be paid regardless of their accuracy. However, lenders will still be able to look at medical information to verify medical exemptions, verify medical expenses that a consumer needs a loan to pay, and consider certain benefits as income when underwriting and other legitimate uses.

In 2023, after the CFPB raised concerns about credit reporting for medical debt, three nationwide credit reporting conglomerates — Equifax, Experian and TransUnion — agreed to pull certain types of medical debt from credit reports, including collections under $500.

Major credit scoring companies FICO and VantageScore also downgraded the impact of medical debt on a consumer’s score.

Even with the changes, 15 million people still have outstanding medical bills in collections that appear in the credit reporting system.