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Most medical debt will be dropped from consumers' credit reports

Study: Med. bills largest source of U.S. debt
Medical bills largest source of U.S. debt, study says 04:23

Medical bills have become a source of major financial trouble for millions of Americans, amounting to the largest source of personal debt in the U.S. Now, the top three credit reporting agencies plan to drop most medical debt from consumers' credit reports starting this summer. 

Equifax, Experian and TransUnion on Friday said that they are making a number of changes to the way they handle medical debt on credit reports, which is a record of a consumer's borrowing and repayment. Lenders use credit reports to determine whether a consumer is a good bet for a loan, which means a poor credit score can make it hard to get a mortgage, car loan or other products. Credit reports can also affect people's ability to rent an apartment and even get a job. 

The announcement comes as federal regulators and consumer advocates are increasingly scrutinizing the issue of medical debt, with the Consumer Financial Protection Bureau earlier this month criticizing the nation's medical billing system for failing consumers. Errors related to medical debt are common on credit reports, and consumers often have difficulty clearing up the problems, the agency said. 

Roughly 1 in 5 U.S. households carry debt related to health care, according to the CFPB.

The three top credit reporting agencies said they are making several changes in how they handle medical debt. They include: 

  • Paid medical debt will be dropped from consumers' credit reports
  • The time period before unpaid medical debts in collections will appear on a credit report will increase from 6 months to 1 year
  • The credit bureaus will drop medical collection debt under $500 from credit reports

"Medical collections debt often arises from unforeseen medical circumstances," said Mark W. Begor, CEO Equifax; Brian Cassin, CEO Experian; and Chris Cartwright, CEO TransUnion, in a joint statement. 

The changes will allow "people across the United States focus on their financial and personal wellbeing," they added.

Government on the case

Ted Rossman, a senior industry analyst at Bankrate, said in a email that removing paid medical bills from people's credit report will boost their credit score. "The fact that new unpaid medical collections won't be reported for at least a year is also a consumer-friendly change that will give patients more time to sort out these bills with their insurance company — which is often a time-consuming and frustrating process," he added.

The CFPB, which was created in the wake of the 2008 financial crisis, supervises the credit agencies. Its March 1 report on medical debt warned that it planned to "hold credit reporting agencies accountable" for inaccurate medical debt on consumer reports. The agency also said it planned to determine whether unpaid medical billing data should be included in credit reports. 

Americans complain about the big three credit reporting agencies more than any other topic, according to analysis of complaints by the CFPB. More than 6 in 10 of complaints received by the CFPB in 2021 were related to Equifax, Experian or TransUnion, the agency said. 

Congress last year sought to address the problem of runway medical bills by passing the "No Surprises Act," which protects people with health insurance from getting billed for receiving emergency medical care outside of an insurer's network. Patients are still responsible for any deductibles and copays they normally would have to pay under their plan, but they may only be billed at their plan's in-network rate.

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