Author: Mindy Leisure, Advantage Credit, Manager of Rescoring Services
As the result of a report issued at the beginning of March 2022 by the Consumer Financial Protection Bureau (CFPB), starting in July 2022 there will be some major changes to credit reports. These changes will impact approximately 20% of consumers in a very positive way.
Beginning July 1, 2022, all paid medical collections will be removed from credit reports and will no longer be reported. Per CFPB Director Rohit Chopra, “When it comes to medical bills, Americans are often caught in a doom loop between their medical provider and insurance company. Our Credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe.”
A collection account, no matter what it is owed for and no matter what the amount, can easily drop a credit score 100 points or more, depending on what the rest of the credit report looks like. According to the CFPB’s research 58% of collections on a consumer’s reports are medical. And as of June 2021, the amount of medical debt on consumer credit reports was $88 billion dollars.
Also going into effect July 1st is the time frame for which unpaid medical debt can be reported. As it stands today, collection agencies must wait six months before they can report the debt to the credit bureaus (Experian, Equifax, and Trans Union) this is being extended to one year. This will give the consumer more time to settle the debt before it is reported to the credit bureaus.
The third change is one that will take effect the first half of 2023. This change will be that any unpaid medical debt under $500 will not be able to be reported at all. That threshold may change between now and the beginning of next year as more research is done. There are those that feel that all medical debt, no matter what the amount should not be able to be reported to the credit bureaus.
The most important part about this is that it will impact all scoring models across the board and not just the newer ones. Today the newer FICO models already weigh medical collections less heavily than older scoring models. But it is those older models that are most used, especially by the mortgage industry. On the new FICO models, it was found that consumers with medical collections had scores an average of 25 points higher than on older scoring models.
These are changes that could potentially help hundreds of thousands of consumers. While the bureaus state that they have been researching the weight medical collections have on credit scores they were quick to designate these new changes as soon as the CFPB released their report at the beginning of March.
It has long been debated on whether or not medical debt should be a determining factor of a borrower’s creditworthiness. Especially since a great deal of the time the consumer is unaware the debt is actually owed. These changes have been a long time coming and will help in making a fairer playing field for many consumers.
