The Frugal Creditnista

Medical Collections Credit Reporting Changes: What You Need to Know

Will your credit score finally get out from under the crushing weight of medical debt? The future is looking healthy. As of July 1, 2022, some medical debt will no longer appear on your credit report, which may help to improve your credit score.

The three major credit reporting bureaus — TransUnion, Experian, and Equifax — are making several changes to how medical debt is reported. With some items disappearing from credit reports (or never making their way there in the first place), your credit score might see a slight improvement in the coming months with no effort on your part.  

Here’s what we know about the medical collection credit reporting changes so far.

No More Medical Debt on Credit Reports?

medical collections credit reporting

When the new changes go into effect on July 1, 2022, all collections that have been paid in full will no longer report on consumer credit reports.

Another major change applies to how long it takes before medical debt in collections appear on our credit report. Currently, that timeframe is about six months — from the time your debt enters collections to the time it appears on your credit report. Starting in July, that timeframe will increase to one year. This now gives you more time to work with medical companies and debt collection agencies before the debts can impact your credit score. 

So, if your medical debt goes to a collections agency and you pay it off within one year, your credit score should be untouched. 

The third change is what happens to medical debt that is currently in collections. Starting in March 2023, the three credit reporting bureaus will no longer include this debt on your credit report if it’s under $500.

What the Changes in Medical Debt Credit Reporting Mean for Consumers

medical collections credit reporting

This change is a step in the right direction, as medical debt affects nearly one in 10 American adults. That’s about 10% of our adult population that owes at least $250 in medical expenses. In the face of skyrocketing healthcare costs and inflation in just about every area of daily life, this number is only expected to grow in the coming years. 

The reasoning behind the change is that medical debt is often a surprise and unplanned for expense, and therefore does not accurately reflect a person’s willingness or ability to repay a debt. 

Census Bureau data from 2017 showed that one in five American families couldn’t pay for medical costs upfront. While these costs might be as “small” as $500 for many individuals, those amounts add up quickly. In total, Americans collectively owe about $88 billion in medical debt.

How These Changes Might Affect Your Credit and Finances

Changing the ways in which medical debts are reported on a person’s credit report isn’t likely to drastically diminish the amount of existing medical debt. However, it may positively impact a person’s ability to repay their debt (medical and otherwise) and improve their overall financial standing. 

Consider this: you have a large unexpected medical bill that you can’t repay all at once. You’re struggling to make installment payments on the debt while also balancing your other debts and bills. The medical debt goes into collections, which substantially lowers your credit score. A lower credit score prevents you from getting a loan or credit card at a good rate, so you end up paying more money in interest for a loan or credit line you really need. Paying more in interest means taking longer to pay off the loan or credit card. You’re stuck in more debt, and it’s harder to get out of it because so much of your money is going toward interest. 

This is just one way that a lower credit score can impact your finances. It’s a costly error that can plague you for years! 

But — if your credit score improves after some of your medical debt is taken off your report, your finances might improve in other ways. 

For instance, let’s say your credit score climbs a few points once some of your medical debt disappears. That might be enough to put you in a different range that looks more favorable to lenders. You might qualify for a better interest rate on a loan or credit card, which means you’ll pay less in interest. You can put more money toward the principle and pay down your debt faster. Getting out of debt faster gives you more money to handle life — whether it’s padding a savings account, having money to invest in, or just treating yourself to something nice. Need some help tackling your collections on your credit reports? Check out my Destroy Your Collections class today!

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