New Plan for Medical Debt Reporting

Earlier this month, the Biden administration announced a plan for removing medical debt from credit reports. If enacted, the rules would dramatically expand protections for many Americans. It is estimated that this could lead to over 22,000 additional mortgage approvals a year. Under the CFPB proposed rule, there would be zero Americans with medical debt listed on their credit report, down from 46 million in 2020.

Medical Collections and Credit Scores

I have seen the damage medical collections can have on a client’s credit score. A payment history and credit utilization pattern that would normally lead to a strong credit score can be crushed by a single medical collection. Often, the client does not even know about the collection until I tell them. Sometimes, they have moved and never even got notice of the debt. Other times, the charge was incorrect, and the client tried to dispute it, but it went to collection before being resolved. Many of the medical collections I see are under $500.

In most cases, the one medical collection is not an indication of the borrower’s history of paying credit cards and other debt on time. It was a one-time problem or misunderstanding, yet it has an outsized impact on the client’s credit score.

Feel free to contact me for additional information.