Medical debt changes could boost credit scores for some

If you’ve checked your credit score recently, you may have seen your number rise. That’s because starting on July 1, paid medical debt that was in collections should no longer be included on consumer credit reports, according to the three largest credit bureaus, TransUnion, Equifax, and Experian.

Under the new rules, you’ll also have more time before unpaid medical debt is reported on your credit report. New unpaid medical debts should only appear a full year after being sent to collections. Before July, it would show up after six months. And under the previous rules, if a medical debt went to collections and was unpaid, it could linger on someone’s credit report for up to seven years.

The change “could lift some people’s scores tremendously,” says Ted Rossman, senior analyst at CreditCards.com. If paid medical debt was dragging your score down, “you may get 100 point boost, or in some cases even a little bit more,” he says.

A better credit score can help you save money, since your score is a key metric lenders use to determine access to, and rates for credit cards, auto loans, mortgages, and other loans and lines of credit.

Say you’re looking at a FICO score, which is the credit scoring algorithm most lenders use, ranges from 300 to 850, and the higher the better. A 100-point improvement could push someone who is in the higher end of the “fair” score bucket (580-669) two levels up into “very good” territory (740-799).

Check your credit report to make sure it’s correct

Americans had $88 billion in medical debt on credit records as of June 2021, according to a report published by the Consumer Financial Protection Bureau last month. So many people could see some benefit from the policy change, Rossman says.

Video by Stephen Parkhurst

To monitor your credit report, Rossman suggests going to AnnualCreditReport.com, where you can pull a free credit report weekly from each of the three major bureaus until December.

Once you have pulled your credit report, make sure your paid medical debt has been dropped. If it hasn’t “file a dispute with whatever credit bureau is reporting the error,” he says.

In addition to monitoring your credit report, “it’s so important to check your credit score,” Rossman says. There are a few ways to get a free credit score. Many credit card companies provide free credit score access to their cardholders, and there are also free sites including Credit Karma and Experian Boost.

More medical debt changes coming in 2023

You may continue to see improvements to your score thanks to another rule that will go into effect sometime in 2023. The credit bureaus said that in the first half of next year, medical debts of less than $500 will not be added to credit reports at all.

As a result of these changes over the next few months, 70% of medical debt will be removed from consumers’ credit reports, according to the three major credit bureaus. “Medical debt is a really significant issue for a lot of people,” says Rossman, “and the credit bureau treatment has all of a sudden become a lot more favorable.”

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