Nearly 1 in 5 Americans owe some amount of medical debt, according to the Consumer Financial Protection Bureau. And while paying it back may be a significant burden on its own, it will now have a smaller impact on Americans’ overall financial health.
Medical bills are now prohibited from appearing on consumers’ credit reports or being used by lenders to make lending decisions, the CFPB announced this month. The agency will also be removing $49 billion in medical debt from the credit reports of roughly 15 million Americans.
“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a press release.
Until this move, unpaid medical bills could appear on your credit report, potentially getting in the way of your ability to get approved for a mortgage or other line of credit, as well as impacting your credit score. On top of that, consumers frequently report receiving inaccurate bills or bills that should have been covered by insurance or other financial assistance programs, the CFPB says.
Americans had around $88 billion in medical debt on their credit reports as of 2022, a separate CFPB report found. Often, that debt was accrued in emergency situations or didn’t represent an accurate amount owed by the patient. Additionally, collection agencies would use those credit reports to coerce patients into paying the bills, regardless of whether they actually owed them, the CFPB said.
As a result, the three major credit bureaus — TransUnion, Equifax and Experian — took some medical debts off consumers’ credit reports, including anything under $500. The latest guidelines go a step further, removing all medical debts from credit reports, regardless of the amount reported.
How your credit score may be affected
Part of the reason the CFPB is removing medical debts from credit reporting is that it doesn’t actually help lenders determine whether someone will repay a loan. Many consumers who had unpaid medical bills on their credit reports had no other red flags in their credit history, such as delinquency on other loans, CFPB research from 2014 found.
In practice, that meant many consumers with otherwise upstanding financial histories would wind up with a mark on their credit report for unpaid bills simply because medical billing is complicated and it often takes time for consumers and collection agencies to figure out what is actually owed and who is responsible for paying it.
Following the CFPB’s action to remove medical bills from credit reports, credit scores for consumers with those debts will go up by an average of 20 points, the CFPB says. An estimated 22,000 more Americans will be able to access affordable mortgages each year as well.
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