The three major credit bureaus have announced plans to alter how they handle medical collections reporting, resulting in the removal of tens of billions of dollars in debt off the credit records of U.S. consumers. The reforms, which will take effect this summer, would eliminate nearly 70% of the medical debt in collection accounts that is presently included on consumer credit reports.
- Experian, Equifax, and TransUnion are modifying how they handle medical debt collection reports.
- Changes include discontinuing paid collection accounts, postponing the reporting of medical collections, and eliminating lesser medical debts entirely.
- While these adjustments have no effect on consumer obligation to pay, they may reduce some of the anguish customers experience when applying for credit.
- The announcement comes just after the Consumer Financial Protection Bureau issued a study stating that credit bureaus enable inaccurate reporting of medical debt.
Details on the New Changes on Medical Collection Reporting
Medical debt may be financially crippling, but it doesn’t have to ruin your credit as well. At least, that’s what the three major credit bureaus, Experian, Equifax, and TransUnion, are claiming.
Credit bureaus have disclosed changes to how they handle reporting of medical bills that have gone to collections, which have been in the works for some months. Beginning in July, the firms will automatically erase settled medical bills that were sent to collectors.
Popular credit scoring models now assign less weight to medical collections than other kinds of collection accounts, and the most recent FICO model completely excludes paid medical collection accounts. However, the majority of big lenders continue to use outdated FICO models, and even paid medical collection accounts may stay on your credit record for up to seven years.
Furthermore, the credit bureaus want to expand the reporting period from 180 days after a medical bill is sent to collections to a full year. This would allow customers to cope with medical debt for a longer period of time without negatively damaging their credit ratings.
Finally, the corporations want to eliminate any outstanding medical bills of less than $500 in the first half of next year, albeit this barrier may be raised.
The Announcement Follows a Damning Report by Consumer Watchdog Agency
The Consumer Financial Protection Bureau (CFPB), the country’s top consumer watchdog, issued a report in early March documenting credit bureau errors related to medical debt. According to the government, 43 million credit reports include $88 billion in medical collection accounts. In fact, medical debts account for 58% of all collection accounts.
The CFPB also said that credit reporting companies have not done enough to prevent erroneous reporting of medical collection accounts, which disproportionately impacts communities of color.
The credit bureaus said in a joint statement that the adjustments reflect the organizations’ commitment to enabling access to fair and affordable credit. The CFPB is still investigating all three corporations for their treatment of customer complaints.
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