Medical Debt and Credit Reporting
According to a report published by the Consumer Financial Protection Bureau, millions of Americans are carrying an estimated $88 billion in medical debts. These medical debts are from bills that have entered delinquent status and many are for medical bills under $500. These debts become a part of the individual’s credit history and remain on their credit report after they have been repaid. Debts traditionally appear on credit reports for up to 7 years after the debt has been paid off. This impacts the ability to qualify for various loans as well as the quality of the loan product the individual is eligible for.
Credit card debt, student loan debt, medical debt and outstanding loans all appear on your credit report and impact your credit score. Your credit score then determines if you qualify for a loan product and it can also impact the interest rate you can get for that loan product. Understanding your credit score is an important part of the home buying process.
2023 Changes in How Medical Debt is Reported
TransUnion, Equifax and Experian are the 3 largest credit bureaus reporting on consumer credit. They have all made a change in the way medical debt is currently reported on individual credit reports. it is estimated by Birchwood Credit Services that 70% of medical collections will be impacted by these changes.
There are three major changes to how medical debt is now reported.
1. As of July 1, 2022 any medical debt that has been paid off will be cleared from the individual’s credit reporting. This means rather than impacting credit for years the individual can potentially see a dramatic change in credit upon clearing their medical debts.
2. As of July 1, 2022 Experian, Equifax and TransUnion have agreed that the time period before unpaid medical debt will appear on credit reporting has increased from 6 months to 1 year. Prior to this change medical debts that were not paid in full 6 months after delinquency would impact credit. Increasing this time to a full year gives the opportunity to pay off debts prior to credit reporting.
3. Going into effect on March 30, 2023 is the final change which says that medical debts less than $500 will not appear on an individual’s credit report.
Understanding Medical Debt
Medical debt is significant in the United States and it’s important to understand how medical billing works. Although more Americans than ever have health insurance, that does not mean that their medical visits are covered in full. Upon visiting a provider your insurance will be billed for the visit and then after payment is indicated by the insurance agency the remainder of the charge is passed on to the patient.
Medical bills are attempted to be collected via bills in the mail and potentially phone calls. If these attempts to collect the debt are not successful after a few months the debt will be sent over to a collection agency who will attempt to collect the debt on behalf of the medical provider. It is at this time that the debt is considered delinquent.
If you do have outstanding medical debt an article on CNBC.com suggests that you acknowledge receipt of the bill. Additionally, it is estimated that 80% of medical bills contain errors. When you call to say you have received the bill you can also declare if you believe the bill to contain an error and this will freeze the clock on when the bill will be considered delinquent and thus delay the appearance on your credit report. It is never a good idea to ignore a potential error in the bill. Acknowledging the bill and asking for a review is the most beneficial action you can take.
Paying Medical Debts
With any debts even if you cannot pay them off in full, making consistent payments will be a benefit to your credit profile. It is never a good idea to skip paying your mortgage or rent in order to fulfill payment on a medical bill.
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