Medical debt on your credit report may soon disappear — here’s why

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If you have looming medical debt on your credit report, relief is on the way. The three largest credit bureaus TransUnion, Equifax and Experian will remove cleared medical debt from consumer credit reports starting in July. This means that if you paid your medical bill in full and the debt is still a minus sign on your credit report, that minus sign will now be removed.

This comes as a relief to millions of Americans struggling with an estimated $88 billion in medical debt, according to a report released last month by the Consumer Financial Protection Bureau.

This debt had significant long-term financial consequences for consumers, as those paid debts sent for collection remained as a red mark on their reports, leaving them with fewer options for housing, loans, and credit cards. Additionally, studies show that this debt can impact other medical problems, like stress and high blood pressure—leading to even more medical debt.

So if you’ve had or are dealing with medical debt in the last few years, there are changes along the way that could potentially benefit your credit score — and your overall financial health.

Select examined the credit bureaus’ decision, what it means for consumers, and how they manage their current or past medical debt.

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Medical debt on your credit report may soon disappear

It was announced on Friday that medical debt remarks will be deleted from millions of credit reports starting this summer. The move will eliminate an estimated 70% of negative commentary on medical debt, giving many a hopeful boost in their credit scores.

Here are the details of the new changes that will take effect on July 1:

  • Paid medical debt that was in collections is no longer included in consumer credit reports
  • You have more time before unpaid medical debt is reported on your credit report: Unpaid medical debt that is currently in collection for one year will be reported on your credit report. This is an increase from the six months that went into effect in 2017.
  • Beginning in the first half of 2023, Equifax, Experian and TransUnion will no longer include medical debt in collections below $500 in credit reports

Jeff Smedsrud, co-founder of HealthCare.com and board member of RIP Medical Debt, said this is a “huge deal” for consumers because medical debt is a financial killer for many — not just the elderly or those with medical conditions. In a recent Healthcare.com survey, all living generations said their medical debt has hurt their credit scores, with Millennials topping the list at 52%.

And while negative remarks about creditworthiness can have long-term financial consequences, medical debt creates a situation where immediate sacrifices are also needed. The same survey found that one in four Gen Zers and Millennials with medical debt missed out on rent or mortgage payments because of their debt. Late paying your mortgage payment can also damage your credit score.

But in recent years, the number of Americans with health insurance has increased dramatically, so where is this mountain of medical debt coming from?

How does medical debt work?

Smedsrud summed up the medical blame simply: “It’s complicated, it’s messy.”

Many Americans assume that if they have insurance, their bills will get paid. Unfortunately, this is not the case. If you have health insurance, it is important to read the Declaration of Benefits (EOB) provided to you by your insurance company. This will tell you what is and is not covered by your insurance policy.

Once your insurance company is billed by the medical provider for services, the provider will bill you for the balance that your insurance company did not cover. They will attempt to collect the remaining balance through phone calls or letters in the post. If you don’t pay your bills after several months, the debt is sold to a medical collection agency to try to collect it. And then your credit score can be negatively affected.

With the announced new reporting policy, that debt will not show up in your credit score for a full year. After that year, if your debt is more than $500, your credit score will be affected.

If you have a large medical debt and you don’t pay, the medical provider or collection agency could potentially file a lawsuit to collect the debt, which could result in garnished wages. Even though this only happens in a few cases, that doesn’t mean it can’t happen to you. According to a ProPublica report, between 2018 and 2020, more than a quarter of the country’s largest hospitals and healthcare systems filed nearly 39,000 lawsuits alleging medical consumer debt.

So, if you receive letters about outstanding medical debt, Smedsrud suggests the following steps:

  • When you receive an invoice, notify them that you have received the invoice.
  • Explain any errors on the invoice to the provider. Numbers vary, but one study estimates that up to 80% of medical bills contain errors.

That way you “freeze” the clock when the vendor declares the debt delinquent and sells it to a collection agency. This can give you more time to pay off your debt and potentially reduce your debt if your bill(s) have real errors.

How to eliminate medical debt and improve your credit score

Smedsrud warns that while this announcement is good news, it “doesn’t eliminate medical debt and doesn’t eliminate all medical debt on credit reports.” And he’s right.

Whether you owe $250 or $50,000 in medical debt, this announcement does not relieve you of your responsibility to pay off the debt. However, there are several things you can do to start paying off your medical debt today:

  • Call the medical provider and negotiate: Smedsrud mentioned that “vendors are more than willing to commit to these things”. They are willing to be paid something instead of nothing. So give them a call, check the fees together and try to negotiate a deal with them. It could be a lower lump sum payment or even an interest-free installment plan. He added, “You’d be surprised they take 25 or 50 cents on the dollar.”
  • Cooperation with independent lawyers and government agencies: Smedsrud urged consumers to be their own advocate when it comes to medical bills and debt. Organizations like RIP Medical Debt, the HealthWell Foundation, and the Patient Advocate Foundation work with individuals to help pay off medical debt. And if you qualify for Medicaid, you may also be able to cover back medical bills. So if you’re in a bind, it may be worth checking out what services they can offer you.
  • Consider debt consolidation: If you have one or more medical debts that you simply would rather pay off, you may consider debt consolidation through a Marcus by Goldman Sachs personal loan. This would take the medical provider or collection agency off your back, eliminate any potentially negative remarks about creditworthiness, and allow you to repay it at a more reasonable pace.

Marcus of Goldman Sachs personal loans

  • Annual Percentage Rate (APR)

    6.99% to 19.99% APR when you sign up for Autopay

  • loan purpose

    Debt Consolidation, Home Improvement, Wedding, Moving and Moving or Vacation

  • loan amounts

  • conditions

  • credit needed

  • incorporation fee

  • Penalty for Early Payout

  • late fee

Wells Fargo Active Cash℠ Card

On Wells Fargo’s secure website

  • reward

    Unlimited 2% cash rewards on purchases

  • welcome bonus

    $200 cash reward bonus after spending $1,000 on purchases in the first 3 months

  • annual fee

  • Introduction APR

    0% introductory APR for 15 months from account opening on purchases and qualifying balance transfers; Balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    15.24% to 25.24% variable APR on purchases and transfers

  • transfer fee

    Introductory fee of 3% (minimum $5) for 120 days from account opening, thereafter up to 5% (minimum $5)

  • foreign transaction fee

  • credit needed

  • Sign up for a credit monitoring service: You may consider subscribing to a credit monitoring service like CreditWise to get a feel for the comments on your credit report. By using a credit monitoring service, you can receive periodic updates on your credit report and all related activity. And with more than a third of credit reports containing errors, your score could potentially be impacted by an incorrect grade. So when you sign up for a service like this, you can highlight previous comments and instantly notify you of new loan requests.

CreditWise® by Capital One

Information about CreditWise has been independently collected by CNBC and has not been verified or provided by the company prior to publication.

  • costs

  • credit bureaus monitored

  • Credit scoring model used

  • Dark web scan

  • identity insurance

Experian Dark Web Scan + Credit Monitoring

On Experian’s secure website

  • costs

  • credit bureaus monitored

  • Credit scoring model used

  • Dark web scan

  • identity insurance

IdentityForce® UltraSecure and UltraSecure+Credit

On Identity Force’s secure website

  • costs

    UltraSecure+Credit Individual starts at $139.90/year and UltraSecure+Credit Family at $209/year. Click “Learn More” for details.

  • credit bureaus monitored

    Experian, Equifax and TransUnion

  • Credit scoring model used

  • Dark web scan

  • identity insurance

    Yes, $1 million for all plans

Conditions apply. To learn more about IdentityForce®, visit their website or call 855-979-1118.

bottom line

The recent announcement from the credit bureaus is a great sign for consumers who have paid off their medical debt but are still suffering from negative scores on their credit scores. However, for those who are still struggling with overdue debt, there are resources available to help you manage a stressful financial situation.

Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editors and has not been reviewed, approved, or otherwise endorsed by any third party.

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