Unpaid medical bills will soon no longer hurt your credit score, according to the Consumer Financial Protection Bureau. The government watchdog group ruled Tuesday that credit reporting agencies can’t include medical debt on credit reports. The rule, which goes into effect on March 17, also bans lenders from using medical information in their decision-making process.
The new rule will remove an estimated $49 billion in medical bills from roughly 15 million credit reports and could potentially raise borrowers’ credit scores an average of 20 points, the CFPB said in a statement.
Credit reports are records of your credit history, including your current and past payment activity, accounts, debt and balances, used to generate a three-digit credit score. A high credit score can get you better terms on credit cards, loans and other types of financing. A lower credit score could mean less favorable borrowing terms or prevent you from qualifying for a loan at all.
Though the change will remove information about your medical debt from your credit report, you’ll still be responsible for paying what you owe, said credit expert John Ulzheimer.
The rule could be challenged when Republicans sweep into office later this month. Some Republican leaders have already called for reining in the CFPB and replacing its director.
If you have unpaid medical bills weighing down your credit score, here’s what you need to know.
Why is the CFPB removing medical debt from credit reports?
Americans owe at least $220 billion in medical debt, with approximately 14 million adults owing more than $1,000, according to estimates by the Kaiser Family Foundation.
Medical debt is different from other types of debt because it usually results from an unavoidable accident, limited insurance coverage or a medical condition.
Lenders use your credit score to determine your likelihood of repaying other debts, yet the CFPB cited research showing that medical debt doesn’t accurately predict a borrower’s creditworthiness. It also noted that consumers frequently report receiving calls from collectors for inaccurate bills or bills that had already been paid.
After the CFPB started raising concerns about medical debt reporting in 2023, the three main credit bureaus in the US — Equifax, Experian and TransUnion — announced that medical debt under $500 would be removed from credit reports. That change reportedly helped boost credit scores by an average of 30 points for those with outstanding medical bills and balances.
The CFPB said the new rule, which was originally proposed last June, will help end the practice of debt collectors using credit reports as leverage to force consumers to pay medical bills, even when they’re inaccurate.
In a separate announcement today, the CFPB said it’s suing Experian for not properly investigating disputes and failing to remove errors from credit reports. Experian responded to the lawsuit in a statement, calling it “another example of irresponsible overreach by the CFPB.”
Will removing medical debt help my finances?
Removing medical debt from your credit report could help boost your credit score if medical collections accounts are dragging it down.
However, the increase may be small. FICO and VantageScore, the two major credit scoring models used in the US, have both decreased the degree to which medical bills impact credit scores.
There’s also the chance your score could drop slightly if your medical debt is removed. Eliminating an account from your credit report could change your credit mix, a factor that makes up 10% of your total credit score.
What can you do if you have medical debt?
If you’re saddled with medical debt, the first step is to determine if the bills are accurate. Reach out to your healthcare provider to make sure the charges are legitimate and your balance is up to date. If the debt hasn’t been sent to collections, you may be able to work out a payment plan.
If your bills have been sent to collections, it’s still worth working to resolve the debt even if it’s removed from your credit report, according to Ulzheimer.
“If you owe a medical debt, then you probably should work with the debt collector on either paying it or settling it, so you don’t find yourself on the wrong end of a lawsuit, which is way more expensive to deal with,” Ulzheimer said.