Some good news for anyone wishing to cleanse their credit reports of medical debt!
The country’s three largest credit reporting agencies are scrubbing an estimated 70% of medical debt from consumer credit reports and are overhauling how they include medical debt in a consumer’s credit history, the companies announced in a joint statement on Friday.
Starting July 1, Equifax (EFX), Experian (EXPGF), and TransUnion (TRU) will no longer include medical debt as collections on consumer credit reports, once these debts have been paid off. This will end billions in debt on consumer credit reports.
Though, the removal of these debts on reports will take about a year, which was previously six months, before a medical debt in collections is reflected on a person’s credit report, the credit bureaus’ said.
The three firms said they decided on this after months of research, in an effort to help households recover and move on from the pandemic.
“Medical collections debt often arises from unforeseen medical circumstances. These changes are another step we’re taking together to help people across the United States focus on their financial and personal well-being,” the agencies added in a joint statement.
The announcement comes after research from the Consumer Financial Protection Bureau showing 43 million Americans have grossed an estimated $88 billion in medical debt on consumer credit records. This is as of June 2021, being the most common debt collection credit account on credit records, the CFPB said.
Historically, medical debt has been crippling. As CNN describes, “Volatile and unpredictable,” medical debt often negatively many affects many financially secure consumers with Black, Hispanic, young, and low-income consumers taking the biggest hit.
Medical concerns have been at the forefront since the COVID-19 pandemic hospitalized millions of people. Publicly critical of the growing concern of medical debt collections by credit reporting agencies is
CFBP Director Rohit Chopra has publicly criticized medical debt collections. Chopra said the CFBD will be “closely scrutinizing” the three credit reporting agencies.
“We expect them to take seriously their role as major actors in the credit reporting system – a system whose integrity and accuracy can determine the financial futures of hundreds of millions of people,” Chopra explained.
According to CNN, advocates at the National Consumer Law Center supported this but warned it may not help the most vulnerable patients whose serious illnesses or accidents accrued large medical bills.
“We are thrilled that the credit bureaus are removing the vast majority of medical debt from credit reports,” Chi Chi Wu, the National Consumer Law Center Staff Attorney, said in a statement. “Medical debt has damaged the credit reports of tens of millions of consumers for far too long.”
Even though this action aims to help households, the downside is 1 in 10 Americans still have medical debt. According to a recently released Kaiser Family Foundation analysis of US Census Bureau Data, although more than 90% of the nation has health insurance, medical debt remains a major problem for millions of Americans. Many people with insurance still struggle with high deductibles and hence, out-of-pocket expenses.
“A serious injury or illness can cost thousands of dollars out-of-pocket to meet these deductibles and other cost-sharing requirements,” the authors of the analysis wrote. “For people with a chronic illness, even smaller copays and other cost-sharing expenses can accumulate to unaffordable amounts.”
According to KCRA, more changes are expected, where it will now take one year before unpaid medical collection debt appears on a consumer’s report, deviating from the usual standard of six months.
The three agencies also said starting in the first half of 2023, medical collection debt less than $500 will no longer be included on credit reports.
Read More via CNN.