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- The major credit reporting agencies have initiated a change so that medical bills of less than $500 will not show up on your credit report after going to collections.
- Due to changes made last year, paid off medical debt no longer appears on credit reports, while medical debt of more than $500 doesn't show up until a year after going to collections.
- If you have difficulties paying your medical bills, negotiate with your healthcare provider and insurance company. You could also turn to outside organizations for financial help or hire a medical billing advocate.
Medical debt in collections under the amount of $500 is now off consumer credit reports, thanks to changes initiated by the major credit reporting agencies last year.
In a joint statement, Equifax, TransUnion and Experian said, “We understand that medical debt is generally not taken on voluntarily and we are committed to continuously evolving credit reporting to support greater and responsible access to credit and mainstream financial services… We believe that the removal of medical collection debt with an initial reported balance of under $500 from U.S. consumer credit reports will have a positive impact on people’s personal and financial well-being.”
In 2022, the credit reporting agencies also made other changes to the reporting of medical debt. For one, medical debt that has been paid off is no longer reported. Also, they extended the timeframe for medical debt to show up on a credit report to one year from the previous six-month period.
How medical debt could impact your credit
Before these changes, even medical debt that was paid off would cast a shadow on your credit report and could lower your credit score for up to seven years after you become delinquent. If you haven’t paid off your medical debt for an amount that is more than $500, it would still have this negative effect. Experian reports that more than three million consumers owe medical debts that are greater than $10,000.
Medical providers typically don’t report medical debt to credit reporting agencies. It will only be reported if you’re delinquent for long enough (typically six months) that the debt goes to collections. With the changes made by the credit reporting agencies, you will have up to a year after your debt goes to collections to sort out the debt before it appears on your credit report (it used to be six months previously). This means, in case there is an insurance issue, you will have more time to work it out.
The impact of medical debt also depends on which credit scoring model lenders turn to. VantageScore versions 3.0 and 4.0 don’t include medical debt in collections to calculate your credit score, so if a lender turns to this credit score, your medical debt will not factor in.
Impact of medical debt reporting changes
Research indicates that medical debt is not a predictive measure of a consumer’s risk of not paying off future debt. The changes mean that consumers who are otherwise in good credit standing will not be penalized for medical debt that may be beyond their control. That will have a positive impact on their ability to seek consumer loans, rental housing or even employment.
According to an analysis by the Consumer Financial Protection Bureau (CFPB), medical bills under $500 are “significantly more likely” to remain on credit reports for a longer period than those of larger amounts. This means that, for those with smaller amounts of medical debt outstanding, “the $500 threshold could mean a large reduction in coercive credit reporting.”
As a result of these changes, about 70 percent of medical debt accounts in collection are no longer on credit reports, according to the consumer protection agency. However, in terms of dollar amounts, the majority of the medical credit-related debt present before these changes will continue to remain on credit reports.
It seems consumers living in the North and East benefited the most from the change toward not reporting medical debt that is paid off. People in those regions are also likely to benefit the most from not having the smaller dollar amounts of medical debt reported. West Virginians, in particular, are likely to benefit from these changes, with 80 percent of their medical debt in collections no longer showing up on credit reports.
Dealing with medical debt
If you have had to deal with medical issues, you should carefully review your bill and find out exactly what amount you are responsible for and what will be picked up by your insurance. You should also watch out for any billing errors.
In case you have financial problems, you should try to negotiate a settlement or payment plan with your medical provider. There are also professionals called medical billing advocates that could negotiate on your behalf if you find yourself in over your head. And you may be able to get some help paying your bills from nonprofits, religious organizations or government assistance.
If your debt goes to collections, you should check your credit report to make sure there are no reported errors. In case you find a mistake, you should follow up with the collections agency to sort out the matter. If that doesn’t work, you can dispute the mistake with the credit reporting agency that reports the matter.
Medical bills can make a hole in your finances, and you could also, if that’s an option, turn to a credit card that offers a promotional 0 percent APR to deal with these bills. You should have a good plan to pay off the amount before your promotional period ends, though.
The bottom line
The three major credit reporting bureaus have initiated changes so that you have more leeway to deal with medical billing issues that are likely beyond your control, without having them cast a shadow over your financial life.
If you have medical billing issues, you should try to sort out the matter with your healthcare provider and insurance company so that your credit is not impacted. If you can’t pay these bills, try to seek help from other organizations or turn to a medical billing advocate.