Most medical debt will soon disappear from credit reports

The three major credit bureaus said nearly 70% of paid medical debt, which can drag down people's credit scores, will be removed from consumer credit reports by July 1.

Additionally, the bureaus — Equifax, Experian and TransUnion — said they would extend the time period before unpaid medical collection debt would be reported on a consumer's credit file to one year, up from six months.

The additional time can give people an opportunity to work with their health care provider to settle any dispute or work out a payment plan before the debt is included on their credit report.

Starting in the first half of 2023, the bureaus will no longer include medical collection debt under at least $500 on credit reports.

The bureaus said this action comes after "months of industry research."

"As an industry, we remain committed to helping drive fair and affordable access to credit for all consumers," the chief executives of the bureaus said in a joint statement earlier this month.

But the decision follows a major report from the Consumer Financial Protection Bureau (CFPB) that indicated the agency was seriously looking into regulatory rules to exclude such debt from credit reports.

As of the second quarter of 2021, 58% of bills in collections were medical bills, according to the CFPB. The CFPB's research also showed $88 billion in medical debt on consumer credit records as of June 2021.

"This action shows that a strong CFPB with a strong director can make transformational change for the lives of everyday consumers," said Jenifer Bosco, staff attorney at the National Consumer Law Center (NCLC). "The change will help most of the 15% of Americans with medical debt on their credit report."

Nearly two-thirds of personal bankruptcies are related to medical debt, according to the NCLC report.

"Unlike other expenses, medical bills often arrive unexpected, sending families spiraling into a financial crisis," Haynes wrote. "The situation worsens as medical bills go unpaid and end up reported to credit bureaus, harming consumer credit scores that increasingly have become important for obtaining employment, housing, and other financial products."

Medical debt can plague people for years. Yet research has demonstrated that medical billing data on credit reports is typically an unreliable indicator of people's ability to pay their bills, the CFPB said.