There’s no question that medical debt accounts for a large portion of overall consumer debt in this country. Further, because hospitals and other medical providers are quick to turn it over to collection agencies, it’s also among the most likely to appear on credit reports – and drive down credit scores.
The Consumer Financial Protection Bureau (CFPB) states that over half of all third-party debt on Americans’ credit reports is medical debt. The Biden administration is putting an end to that. The CFPB is implementing a new rule to end the reporting of any medical debt to the three major credit reporting agencies. The plan is for it to be in place by the end of the year. (Currently, any medical debt of $500 or more sent to collection can be reported.)
Why medical debt isn’t a good reflection of whether a person is a good credit risk
Since medical debt isn’t a good indicator of creditworthiness, those who have been advocating for this change note that it’s unnecessarily harmful to Americans to have their credit scores negatively affected because they owe money for their or a loved one’s medical expenses. Vice President Kamala Harris noted, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.”
Further, much of this debt may not even reflect what a person owes. The vast majority (about 80%) of medical bills contain errors, including services billed that weren’t performed or duplicate charges.
Often these errors aren’t noticed because it can be difficult to decipher a hospital invoice without the help of a medical dictionary. Besides that, as the head of the CFPB notes, it’s difficult for people to try to dispute questionable charges “while dealing with serious illness.”
Certainly, getting medical debt off of your credit report will help preserve your credit score. However, if medical debt has wreaked havoc on your financial health, it’s worthwhile to explore options to get relief. Having sound legal guidance can help you determine the best one for you.