Credit scores play an outsize role in American life. Without a decent credit score, it’s difficult to get a loan for a home, car or business, or even get a job. That’s why it’s welcome news that starting July 1, the nation’s three large credit reporting agencies — Equifax, Experian and TransUnion — will stop including the vast majority of medical debt on people’s credit reports.
This is no small change. Medical debt is the most common form of debt in collection listed on people’s credit reports — by far. There have been horror stories in recent years of credit scores nosediving because of unpaid medical bills that went to a collection agency. Some of this is the result of expensive treatments for cancer, diabetes and other chronic illnesses that subpar insurance does not fully cover. But more than 60 percent of medical debts are for amounts less than $500. When those small amounts go into collection, they can stay on a person’s credit report for up to seven years, even after the debt is paid. Black families are far more likely to have medical debt than White families, census data shows.
Starting in July, medical debt will be removed from credit reports once it is paid. New debts won’t be listed until they have been at a collection agency for a year, a big increase from the current practice of six months. These changes are expected to eliminate about 70 percent of medical debt on credit reports. In many cases, it isn’t even the patient’s fault that this debt exists. The real fault is often insurers that are slow to pay their share of the bill, consumer rights advocates say. In early 2023, credit agencies say they will also stop including medical debts of less than $500 on reports.
As welcome as this news is, the devil is in the details. The industry is voluntarily changing its ways. There is nothing to ensure these changes remain in place if, for example, the Consumer Financial Protection Bureau returns to Republican leadership in the coming years.
“The credit agencies are doing this because they see the handwriting on the wall from this current Consumer Financial Protection Bureau, which is assertive and strong under Director [Rohit] Chopra,” said Chi Chi Wu, a National Consumer Law Center attorney. The CFPB put out a scathing report on the “medical debt burden” in February. It warned it would crack down on credit agencies, as well as hospitals and medical practices that are abusing the system.
Congress should pass a law codifying these important changes. Legislation should also ban credit reports from showing medical debt accrued for any medically necessary procedures, such as cancer treatments.
Medical debt comes at an especially vulnerable time for people recovering from serious illness. A credit score reduction only makes recovery harder.
