How Is My Credit Score Affected by Medical Debts?

 Posted on September 09, 2022 in Credit Score

Debt can affect people in multiple ways. Those who have struggled to repay their debts due to financial issues have a number of options for debt relief, including filing for bankruptcy. However, those who have eliminated debts through bankruptcy or who have used other methods to address the amounts owed will want to understand how their credit scores may be affected by this issue. For those who have medical debts, it is important to understand how these debts are reported to credit agencies. Fortunately, some recent policy changes may benefit people with medical debts and reduce the negative impact on their credit scores.

Changes to Reporting of Medical Debts

Medical debt is often a significant concern for people who are experiencing financial difficulties. Medical treatment may be necessary in certain situations, such as when a person requires treatment for a serious injury or when care is needed for an illness such as cancer. Medical treatment can be very expensive, and a person may be required to pay large medical bills, even when they have health insurance coverage. As a result, many people end up with medical debt, and this can have a significant impact on their credit scores.

The Consumer Financial Protection Bureau has reported that Americans have a total of around $88 million in medical debt. However, in most cases, these debts are $500 or less. Because debts that appear on credit reports can affect people's ability to obtain loans, find employment, or obtain housing, credit reporting agencies (Equifax, TransUnion, and Experian) have taken steps to limit the ways that medical debts will affect credit scores.

Credit reporting agencies have put new policies in place to address medical debts and minimize the negative impact they can have on consumers' credit. These policies went into effect on July 1, 2022, and they include:

• If medical debts have been sent to collections, but they have been paid, they will no longer appear on a person's credit report. Typically, debts that are in collections remain on a credit report, lowering a person's credit score and affecting their creditworthiness. By removing medical debts that have been paid from credit reports, this will ensure that a person will have a better chance of obtaining credit in the future.
• The time limit before medical debts are added to a credit report has been increased. Previously, an unpaid debt that was in collections for six months would be added to a person's credit report. This limit has been increased to one year. This will provide people with more time to pay off debts before their credit scores will be negatively affected.
• Medical debts of less than $500 will no longer be included in credit reports. This change will go into effect sometime in early 2023. With this change, consumers can be sure that smaller amounts of medical debt will not lead to a lower credit score.

These changes are expected to remove around 70 percent of negative issues related to medical debts from people's credit reports. This will allow more people to avoid problems related to these types of debts, give them more time to pay off what they owe and provide them with the opportunity to rebuild their credit after encountering financial difficulties.

Contact Our New Braunfels Debt Relief Lawyer

While these new policies are likely to benefit many people, those who have extensive medical debts may still need to determine their options for reducing or eliminating the amounts they owe. For some people, filing for bankruptcy may be the best option for dealing with medical debt. An experienced Boerne, TX bankruptcy attorney can review your situation and help you determine whether bankruptcy is right for you. Call us today at 210-342-3400 to arrange a free consultation.

Sources:

https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-states_report_2022-03.pdf

https://www.cnbc.com/select/medical-debt-credit-report/