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Medical debt removal from credit reports potentially impacts millions of consumers

Medical debt removal from credit reports potentially impacts millions of consumers.

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The three major consumer reporting agencies (Equifax, Experian, and TransUnion) recently announced future changes to the reporting of medical collection debt. According to the CFPB, these changes will erase nearly 70% of medical collection debt from consumer credit reports.

The changes in medical debt reporting will include:

  • Paid medical collection debt will no longer be reported on consumer credit reports (effective July 1, 2022)

  • Consumers will have more time to work with insurance and healthcare providers to address their medical debt before it's reported. New third-party medical collections will be added to credit reports only after one year has passed. Currently, it is reported after six months

  • Equifax, Experian, and TransUnion will also no longer report third-party medical collection debt under at least $500 (starting sometime in the first half of 2023)

FICO® Score Impacts

The percent of people with FICO® Scores that have a paid medical collection reported is relatively low at ~2%, and approximately 10% of people with FICO Scores have a reported medical collection less than $500.

The most recent FICO® Score versions already have logic in place that bypasses all third-party collections (including medical) that are paid in full or those with an original amount under $100, and place less weight on unpaid medical debt relative to other unpaid bills. FICO Score 8 bypasses all third-party collections with an original amount under $100.

The potential impact on a person's FICO® Scores associated with these changes will depend on both the amount of collection information removed as a result of these changes, as well as the other information contained in the person's credit file:

  • If the consumer has other negative items reported in their credit file, the recency, frequency, and severity of those negative items will continue to be assessed by the score. Therefore, the removal of paid third-party medical collections and/or third-party medical collections <$500 may have a more modest impact on the score.

  • If the third-party medical collection is the only negative item reported, its removal could have a more substantial positive impact on score.

Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.