‘Could be the difference between approval and denial’: Experian, Equifax and TransUnion remove fully paid medical debt from credit reports. Will it help your credit score?

Paid medical debt is coming off consumer credit reports as part of an overhaul that the credit bureaus say will improve people’s financial well-being.

In an era of rising interest rates and rising costs with hopefully the scariest days of the pandemic, for some this cannot come too soon.

Equifax, Experian and TransUnion are removing fully paid debt from reporting, effective July 1. Additionally, it will now take a year, instead of six months, before new unpaid medical debts appear on a person’s report. Additionally, in the first half of next year, all three companies will take unpaid medical collection debts with reported initial balances of less than $500 off the reports.

The changes will erase about 70% of paid medical debt from consumer credit reports.

Together, the changes will erase 70% of paid medical debt that is bogging down credit reports, according to an initial announcement made in March by the three credit reporting companies.

Americans racked up $88 billion in medical debt on their credit reports as of mid-2021, according to the Consumer Financial Protection Bureau. Most were under $500, the agency said.

Improving credit scores will always make a difference in a person’s financial life, but eliminating medical debt can have special meaning now.

Equifax EFX,
+2.06%,
EXPERIAN EXPGY,
+0.78%
and TransUnion TRU,
+2.41%
originally unveiled the announcement in March 2022, around the same time the US Federal Reserve raised a benchmark interest rate to fight inflation. The Fed raised rates on June 15 by 75 basis points, the third hike this year and the largest since 1994, and officials have signaled they are ready to continue.

“The idea that millions of people potentially have old debt that has just been removed from their credit report is a big deal,” said Matt Schulz, chief credit analyst at LendingTree, who estimates that 23% of Americans have medical debt.

“With interest rates rising and inflation rising, the idea that people can improve their credit score can be really helpful.”


— Matt Schulz, Chief Credit Analyst at LendingTree

“There are very few things in life that cost more than lousy credit. With interest rates rising and inflation rising, the idea that people can increase their credit score can be very helpful, because a higher credit score usually equates to lower rates on things like mortgages, credit cards and auto loans,” he said.

Credit reports can be bureaucratic and mundane, agrees John Ulzheimer, a credit expert who previously worked at FICO FICO,
+1.84%
and Equifax. But July 1 is “a watershed day” for its implications and potential consequences for consumers, he said.

The practical effects of referrals are going to vary for each person, Ulzheimer noted. If a consumer has dings and other derogatory data on their report, erasing paid medical debt won’t make much difference.

But if debt is the only thing marring an otherwise “clean” report, Ulzheimer said the benefit from a pullout could be substantial. “It could be the difference between an approval and a refusal, and an approval with a better interest rate. The upside is huge,” he said.

“Unforeseen expenses, such as the cost of an unscheduled medical visit, can be a hardship for many families,” the CEOs of Equifax, Experian and TransUnion said in a joint statement Friday. “These changes will realign our approach to reporting medical collection debt in a way designed to help consumers focus on their personal well-being.”

How much can canceling a medical debt increase a credit score?

If it helps your credit score, how much will it help you? It is impossible to give an answer, said Ulzheimer and Schulz. There are too many variables on a person’s credit history to estimate the impact on the bottom line, they noted.

“He certainly has the ability or the potential to move a person’s credit from fair to good, or from good to excellent. Depending on where you fall within these credit score ranges; sometimes it doesn’t take a lot of movement to be meaningful,” Schulz said.

Even if removing medical debt doesn’t translate to an increase in credit rating, Ulzheimer said it won’t subtract a person’s rating.

“No one should have to worry about their reputation being tarnished for years just because they were injured or ill.”


– Patricia Kelmar, Director of Healthcare Campaigns for the American PIRG

It’s a point that has come up as the Biden administration considers mass cancellation of student loans up to $10,000. There may be instances where loan forgiveness can lower a person’s credit rating. The move could erase a data point that would allow lenders to assess the creditworthiness of someone who has not yet built up a financial history.

The difference is that when debt collection shows up on a credit score, it’s inherently derogatory, Ulzheimer said. “No credit system views recoveries as positive.”

Medical debt is not a good sign of a person’s ability to repay their loans because they cannot control when major medical events occur, consumer advocates say. “No one should have to worry about their reputation being tarnished for years just because they’ve been injured or sick,” said Patricia Kelmar, director of healthcare campaigns for US PIRG.

Starting this year, the No Surprises Act says people can’t be blindsided by out-of-network medical treatment bills. Surprise medical bills were a major contributor to medical debt, researchers say.

When can people see a difference in their score?

Medical debts with a balance of $0 will be erased from reports, but this does not mean that the score changes immediately. “There has to be a catalyst for your score to be calculated,” Ulzheimer said. It could be a car loan or a mortgage application, a potential increase in credit line, etc., he explained.

As a result, it could be a matter of days for one person, or it could take months or more before another person is involved in a transaction that prompts a review of their credit history, he said.

As for timing, if someone is seriously considering a major transaction now, like buying a car or a house, financial experts say they should lock in rates before another hike.

Also regarding timing, it is currently unclear when the three companies will take the next step of removing unpaid medical collection debts under $500 from reports. This will happen “in the first half of 2023,” the three companies said on Friday.
Each time the reporting takes place will also be a significant moment, Schulz and Ulzheimer said.

But they noted that future changes could also come with risks, as some people could be lulled into thinking they don’t have to pay a debt if it doesn’t show up on their credit report. Consumers still have to pay the debts, and no one wants to face a collection lawsuit, Ulzheimer said.

How to verify that the deletion has taken place?

Seeing that changes when debt is cleared from your credit report “could significantly improve your credit score,” say US PIRG consumer advocates, but they also advise people to double-check that paid medical debt doesn’t is no longer listed in their reports. .

Free copies can be requested online at AnnualCreditReport.com and at 1-877-322-8228.

To spot potential errors and omissions, people reviewing their reports should check for “signals” on new debts or in the “account information” or “collections” portion of the report, according to US PIRG.

If paid medical debt still appears, companies have dispute processes and timelines for resolving complaints. Consumers should check their credit history with all three companies, the organization advised.

See also: Mortgage rates blow after nearly doubling in a year

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