One year after the credit-reporting firms removed some medical debt from the US consumers’ credit reports, 70 percent of the debt is not visible on their reports.
Last year, the 3 major credit bureaus in the US, Equifax, Experian, and TransUnion said they would stop counting some medical debt in credit reports. The proposed change was big news. The question was how medical debt will be factored into the financial performance of an individual.
The 3 credit bureaus also said they would stop including medical debts in collections before being paid. But, it came with a caveat. They said that it shall also take a year before the medical debt in collections reflects on a person’s credit report.
Past-due medical debt that is reported to credit bureaus may impact individuals. It can reduce their access to credit, renting, or taking a mortgage. Younger people, lower-income persons, and people of color are more likely to have medical debt than the national average.
These changes became effective from July 1, 2022. The bureaus said it shall remove significant debt from individuals’ credit reports. They have also said medical debt below dollars 500 shall be removed from people’s credit reports.
In a joint statement, the CEOs of Experian, Equifax, and TransUnion said that they are committed to continuously evolving credit reporting. They understand that medical debt is not taken on voluntarily. They are committed to supporting greater access to credit and mainstream financial services. Removing medical debt with a balance of below dollars 500 from the US consumer credit reports shall positively impact people’s personal and financial well-being.
Last March, the Consumer Financial Protection said in a report that the Bureau of US Consumers had held a total of dollars 88 billion in medical debt. This is based on consumer credit records in June 2021. Most of the debt was under dollars 500.
The report further stated that the data from the Consumer Credit Panel of the Consumer Financial Protection Bureau. It shows that in 2020, the median-medical collection was $ 310 and the mean medical collection was $ 773. Moreover, 62 percent of medical collections were below $ 490.
How to analyze the new move
The Washington Post reported that on Tuesday, Experian, Equifax, and TransUnion announced that medical collections with balances of dollars 500 and less will not appear on consumer credit reports. This will be an important step in helping millions of people. It will especially help those who are young and at the lower wage scale level.
So now, about 70% of all medical debt sent to collections is not a part of consumer credit files.
The US administration said about the previous year’s plans for medical debt reforms. It included telling the Department of Health to look at providers’ billing practices. It also aimed to help veterans get their medical debt forgiven.
The point of credit scoring, here, is to predict who may default on their debts. In a report the previous year, the CFPB questioned whether this type of debt is to be reported to the credit bureaus and thus can be factored into credit scores.