What the Medical Debt Credit Report Rule Does — And Doesn’t — Mean for You
Millions of Americans have crushing medical debt. But here’s some good news: they won’t have to worry about unpaid medical bills damaging their FICO scores anymore. On Jan. 7, the Consumer Financial Protection Bureau (CFPB) finalized a rule that will remove a whopping $49 billion in medical bills from the credit reports of around 15 million Americans.
Here’s more on how this new medical debt credit report rule works and what it means for you.
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What Does the New Medical Debt Credit Report Rule Do?
The CFPB’s new medical debt credit report rule is designed to address long-standing issues with medical debt on credit reports. Here are the key changes:
- Banning medical debts from credit reports. Once the rule goes into effect in around 60 days, credit reporting agencies like Equifax, Experian and TransUnion are banned from including medical bills on the credit reports they send to lenders.
- Prohibiting lenders from using medical debt information. This rule will also prohibit lenders from using medical debt information against borrowers applying for loans.
- Eliminating coercion by debt collectors. Debt collectors can no longer use the credit reporting system to coerce medical bill payments, regardless of their accuracy.
Why This Matters
Crippling medical debt has prevented thousands of Americans from getting approved for mortgages, car loans and even credit cards. But according to the CFPB’s research, medical debt often isn’t a good indicator of borrowers’ ability to repay other types of debts. And for that reason, medical debts shouldn’t be allowed to tarnish credit reports.
The CFPB estimates that once this new rule is in effect, it will lead to the approval of around 22,000 additional affordable mortgages each year. Plus, Americans with medical debt that was negatively affecting their FICO score may also see an average boost of 20 points.
“People who get sick shouldn’t have their financial future upended,” Rohit Chopra, the bureau’s director, said in the news release. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”
How Did Unpaid Medical Debt Affect Credit Before?
Before this rule, if you had a medical bill over $500 that went unpaid and was sent to collections, it would show up on your credit report and stain it for up to seven years. This damages your credit score and makes it much harder to get approved for affordable loans or credit cards.
Even worse, medical debt in credit reports is often inaccurate or inflated. The CFPB says, around 15% of debt collection complaints they received in 2021 were related to medical debt collection. This means if you didn’t have the habit of checking your credit report for mistakes, you might have unknowingly carried medical debt that you didn’t even owe.
Does This Mean You Don’t Have to Pay Medical Bills Anymore?
Though unpaid medical bills won’t necessarily tank your credit score anymore, you shouldn’t ignore them. Here’s why:
- Debt collectors can still pursue you. Just because medical debt isn’t on your credit report doesn’t mean it will magically disappear. If you owe medical bills, the provider can sell your debt to debt collectors, which means debt collectors could contact you and even take legal action to recover unpaid bills. Most health providers will send your bill to a medical collection agency if it goes unpaid for over 60, 90 or 120 days.
- Potential legal consequences. Though hospitals and medical providers are more likely to send your bill to a collection agency than sue you, it could still happen. And when you have a court judgment against you, it can result in wage garnishment or liens on your property in some states.
- Interruptions in getting the care you need. If you’ve racked up a significant amount of medical debt, some hospitals or health care providers may stop providing you non-emergency services.
What’s Next?
The rule is a step in the right direction. However, it’s not a cure-all for the medical debt crisis and expensive health care in America. Here’s what you can do to protect yourself and your finances moving forward:
- Check your medical bills. Always review your bills for accuracy. If something looks off, don’t hesitate to contact your provider or insurer to dispute it.
- Negotiate payment plans. If you’re struggling to afford a medical bill, talk to your hospital or medical care provider to see if you could work out a payment plan. Nonprofit hospitals are required by law to offer financial assistance programs to patients. State or local social services may also offer some financial help.
- Know your rights. Debt collectors must follow the Fair Debt Collection Practices Act (FDCPA). This means they can only contact you about valid debts you owe. You also have the right to verify that you indeed owe the debt and the amount is correct. Check out the CFPB’s website to learn more about your debt collection rights.
- Continue to monitor your credit reports. Even though medical debts will no longer show up on your credit report, you should still make it a habit to keep an eye on your credit reports for potential errors. You can get a free weekly report at annualcreditreport.com.
Medical Debt Is Still an Issue in America
Medical debt is the single largest source of debt in collections. It disproportionately affects people with lower incomes and those without insurance, creating a cycle of financial hardship. According to a KFF poll, people with medical debt often cut spending on food and other household items to pay for medical bills. Though this new rule is a step toward making the credit system fairer and more reflective of people’s actual financial health, many Americans still feel trapped by medical debt.
“Unfortunately, this new rule only takes away the collateral damage of medical debt: the hit to consumer’s credit reports,” Bobbi Rebell, CFP, Founder and CEO of Financial Wellness Strategies, said in an email. “The root cause, a broken health care system, is still there. The rule does nothing to prevent inaccurate and unfair billing, and consumers who are on the receiving end still have to deal with it.”
Jamela Adam is a personal finance writer covering topics such as savings, investing, mortgages, student loans and more. Her work has appeared in Forbes Advisor, Chime, U.S. News & World Report, RateGenius and GOBankingRates, among other publications.
