Top credit bureaus to relax penalties for medical debt

The three largest credit bureaus – TransUnion, Equifax and Experian – will clear medical debts from consumer credit reports beginning in July. If the debts have been paid in full but are still on a credit report as a negative mark, the adverse notes will be removed. Normally such derogatory statements stay on a person’s credit report for up to seven years.

The Consumer Financial Protection Bureau said recently there is an estimated $88 billion in medical debt on the records of millions of Americans. The move by the credit bureau will bring substantial relief to those who have paid off their debt but would otherwise continue to be penalized by the credit history. Late medical care payments appearing on these reports are generally insurance co-pays and uninsured procedures.

Move will aid loan qualifications

Leslie H. Tayne, a financial attorney who specializes in consumer debt relief and debt settlement, said the move by the credit bureaus was prompted by the challenges of consumer credit scores being bogged down by old histories of medical debt and a desire to give more consumers an opportunity to qualify for certain loans.

“A lot of medical debts are on the smaller size, like under $500 and are co-pays,” she said. “And there are a large number of people who have such debt on their record.”

She said in just the last two years there have been almost 40,000 legal actions regarding medical debt. She added that nearly one in 10 adults, about 23 million Americans, have at least $250 in medical debt.

“So that's a pretty substantial figure,” she said. “And it can arise from unforeseen circumstances. … These are not loans, like a car loan that someone applies for. These are debts that occurred because of a necessity or emergency.”

Survey focused on debt issues

A recent Healthcare.com survey, found a majority of Americans said that medical debt harmed their credit scores, with millennials being the highest a 52%. The same survey indicated one in four Gen Zers and Millennials with medical debt delayed or skipped rent or mortgage payments because of their debt, which may have also contributed to negative credit reports.

Debt that is more than $500 and has been resolved will come off one’s credit report, Tayne said.

The new policies contain language that will evolve credit reporting and scores related to medical debt:

• Beginning in 2023, Equifax, Experian and TransUnion will no longer include medical debt in collections under $500 on credit reports.
• Paid medical debt that had been in collections will no longer be included on consumer credit report
• Unpaid medical debt currently in collections for one year will be reported on credit reports. This is an increase from six months that was enacted in 2017.

A small debt may have an impact

“Sometimes people with pristine credit find out that they there's just a medical bill on their report that drops their score 50 points. It might be a $25 copay that you didn't even get notice of, or you disputed,” Tayne said.

She offered an example of a client who is being sued for medical debt by an insurer who disputed saying it hadn’t given authorization for the out of network doctor. The insurance company sent it to collections and then filed suit.

Tayne recommends that consumers always get an itemized bill from the medical care provider to make certain they actually received the services they’re being charged with.  She noted she also has had experience with an unpaid bill that could have caused a negative ding on her credit report.

“I got a notice about a bill from an out of state doctor who previously had an old address for me,” she said. “I didn't know that I even owed any money and I would have paid if they had sent the bill to the right address. So, whoever you're working with, all your providers, should have updated information. That's super important.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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