“It could be the difference between approval and rejection”: Experian, Equifax and TransUnion remove fully paid medical debt from credit reports. Will this help your credit score?

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Medical debt paid off rolls off consumer credit reports in an overhaul that the credit bureaus say will improve people’s financial well-being.

At a time of rising interest rates and rising costs, when the scariest days of the pandemic are hopefully over, it can’t come a moment too soon for some.

Equifax, Experian and TransUnion remove fully paid debt from reports effective July 1. Also, it will now take a year for new unpaid medical debt to show up on a person’s report, instead of six months. In addition, the three companies will de-report unpaid medical collection debt with initially reported balances under $500 in the first half of next year.

The changes will erase an estimated 70% of medical debt paid off from consumers’ credit reports.

Taken together, the changes will wipe out 70% of paid medical debt that is stalling credit reports, according to a March first announcement from the three credit bureaus.

As of mid-2021, Americans have $88 billion in medical debt on their credit records, according to the Consumer Financial Protection Bureau. Most of it was under $500, the agency said.

Improved credit scores will always make a difference in a person’s financial life, but paying off medical debt can have special meaning now.

Equifax EFX,
+2.06%,
Experian EXPGY,
+0.78%
and Trans Union TRU,
+2.41%
The announcement was originally made in March 2022, around the same time that the US Federal Reserve raised a key interest rate reference rate to fight inflation. The Fed raised interest rates by 75 basis points on June 15, the third hike this year and the largest since 1994, and officials have signaled they are ready to move on.

“The notion that millions of people might have old debt that just got wiped off their credit report is a big deal,” said Matt Schulz, chief credit analyst at LendingTree, who estimates that 23% of Americans have medical-related debt.

“With interest rates rising and inflation rising, the idea that people can improve their credit scores can be really helpful.”


– Matt Schulz, chief credit analyst at LendingTree

“There is hardly anything in life that is more expensive than lousy loans. With interest rates rising and inflation rising, the idea that people can improve their credit ratings can be really helpful, because higher credit ratings generally mean lower interest rates on things like mortgages, credit cards and car loans,” he said.

Credit reports can be bureaucratic and mundane, admits John Ulzheimer, a credit professional who used to work at FICO FICO,
+1.84%
and equifax. But July 1 is “a tipping point” for its impact and potential consequences for consumers, he said.

The practical implications of the moves will be different for each person, Ulzheimer noted. If a consumer has dents and other derogatory data on their report, paying off medical debt won’t make much of a difference.

But if the debt is the only thing marring an otherwise “clean” report, the benefit of removal could be significant, Ulzheimer said. “It could be the difference between an approval and denial and an approval with a better interest rate. The uptrend is huge,” he said.

“Unexpected expenses, such as the cost of an unplanned doctor’s visit, can be a hardship for many families,” the CEOs of Equifax, Experian and TransUnion said in a joint statement Friday. “These changes will realign our approach to reporting medical debt collections so that consumers can focus on their personal well-being.”

How Much Can Medical Debt Elimination Boost a Credit Score?

If it helps your credit score, how much will it help? There is no answer to that, said Ulzheimer and Schulz. There are too many variables about an individual’s credit history to gauge the impact on the bottom line, they found.

“It certainly has the ability or potential to change a person’s credit rating from fair to good or from good to excellent. Depending on where you are in these credit score ranges; Sometimes it doesn’t take that much movement to be meaningful,” Schulz said.

Even if medical debt elimination doesn’t result in a credit boost, Ulzheimer said it won’t be subtracted from a person’s score.

“No one should have to worry about their reputation being tarnished for years just because they got injured or ill.”


— Patricia Kelmar, director of health campaigns for US PIRG

It’s a point that has emerged as the Biden administration considers a mass cancellation of up to $10,000 in student loans. There may be instances where credit forgiveness may reduce an individual’s creditworthiness. The move could wipe out a data point that would allow lenders to assess the creditworthiness of an individual who hasn’t yet accumulated a financial track record.

The difference is that collecting on a credit score is inherently pejorative, Ulzheimer said. “No credit system considers collections a positive.”

Medical debt does not bode well for a person’s ability to repay loans because they cannot control when major medical events occur, according to consumer advocates. “Nobody should have to worry about years of tarnishing of their reputation simply because they got injured or got sick,” said Patricia Kelmar, US PIRG’s director of public health campaigns.

Starting this year, the No Surprises Act states that people cannot be surprised by off-network medical bills. Surprise medical bills have been a big contributor to medical debt, researchers say.

When can people see a difference in their score?

Medical debt with a balance of $0 will be removed from the reports, but that doesn’t mean the score will change immediately. “There has to be a catalyst for your score to be calculated,” Ulzheimer said. It could be a car loan or a mortgage application, a potential credit line increase, and so on, he explained.

As a result, it could be as little as days for one person, or it could be months or longer for another person to be involved in a transaction that requires a look at their credit history, he said.

When it comes to timing, financial experts say that if someone is seriously contemplating a large transaction like buying a car or home, they should lock rates before the next hike.

Also in terms of timing, it’s currently unclear when the three companies will take the next step to remove unpaid debt collections under $500 from reports. The three companies announced on Friday that this would happen “in the first half of 2023”.
Whenever it comes to reporting, that is also an important moment, said Schulz and Ulzheimer.

However, they noted that the future changes could also pose dangers, as some people may think they don’t have to pay debt if it doesn’t show up on their credit report. Consumers still have to pay the debt, and no one wants to deal with a debt collection lawsuit, Ulzheimer said.

How can I verify that the removal has taken place?

Given that removing debt from your credit report, the changes “could significantly improve your credit score,” say US PIRG consumer advocates, but they also advise people to check to see if medical debt that has been paid off is no longer on their reports are listed .

Free copies can be requested online at AnnualCreditReport.com and at 1-877-322-8228.

To spot potential errors and omissions, people reviewing their reports should look for “flags” for new debt or in the “Account Information” or “Collections” sections of the report, according to US PIRG.

If paid medical debts still crop up, companies have litigation procedures and deadlines to resolve grievances. Consumers should check their creditworthiness with all three companies, the organization advised.

See also: Mortgage rates are taking a breather after nearly doubling in a year

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