There are some big changes coming in terms of how the credit bureaus view medical debt, and I think these are really consumer-friendly developments. One, starting in July, is that paid medical collections will no longer appear on credit reports. Also starting July 1st, any medical collections that are less than a year old will be removed. And finally, starting next year, medical debts below $500 will be removed from credit reports.
I think these are wins all around. To be clear, you still need to pay your medical debt, of course. This is just changing how it’s viewed by the credit bureaus. And if you do have legitimate medical debt, I would suggest trying to work out a payment plan with the doctor or hospital. A lot of times they can give you a low- or zero-interest plan for several years.
A Plan B might be a personal loan or nonprofit credit counseling. I would avoid putting this money on a credit card because that carries a very high interest rate averaging over 16 percent.
So why are these changes happening? There’s been a push from the CFPB and also from the lending industry to take a deeper look at medical debt. It’s kind of apples-to-oranges with respect to other debts. Medical debt may literally represent a one-time life-or-death kind of situation. It’s pretty different from willingly signing up for a credit card or a car loan or a mortgage that you pay back every month.
There are also some questions about the accuracy of medical debt information. And also how predictive it is. Is it even your fault? Is it maybe just a mix-up with insurance? All these things are leading the industry to take this information off credit reports in many cases. Seventy percent of medical debt will soon be coming off of consumers’ credit reports. And that should significantly lift a lot of Americans’ credit scores.
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