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Equifax, Experian, and TransUnion Change the Way They Report Medical Debt

consumer credit score

The three largest credit reporting companies in the U.S. announced last week they will change the way medical debt is used to calculate the scores consumers need to qualify consumers for mortgages, car loans, and sometimes even jobs.

Starting in July, Equifax, Experian, and TransUnion will enact changes that will remove nearly 70% of medical collection debt from consumer credit reports, the companies said in a joint statement last week.

As part of the change, medical debt that had been in collection will not be included in consumer records once it has been paid, the companies said. Under the current system, overdue medical bills could linger on credit histories for up to seven years, even after they were paid off.

In addition, unpaid medical bills won’t appear in credit histories for a year, instead of the six months that is the current practice, “giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file,” the companies said.

And, starting in 2023, the three credit companies will no longer include medical collection debt under $500 on credit reports.

“After two years of the Covid-19 pandemic and a detailed review of the prevalence of medical collection debt on credit reports,” the credit companies “are making changes to help people to focus on their personal wellbeing and recovery,” the statement said.

Americans currently owe about $195 billion of medical debt, even though more than 90% of the population is insured, according to the Kaiser Family Foundation.

Two-thirds of medical debt is the result of a one-time or short-term medical expense stemming from a health crisis, the foundation said.

“There are aspects of this new policy that are going to mean additional information that was previously being considered no longer being seen by the score, and that could mean significant improvement in scores,” Ethan Dornhelm, vice president of scores and predictive analytics at FICO, told CBS News last week.

Better credit scores could save consumers thousands of dollars by giving them cheaper financing, Dornhelm said. If a consumer has a FICO score of 620 that improves to 660, on a $35,000 auto loan the borrower could save over $3,000, he said.

About The Author:

Kathleen Howley has more than 20 years of experience reporting on the housing and mortgage markets for Bloomberg, Forbes and HousingWire. She earned the Gerald Loeb Award for Distinguished Business and Financial Journalism in 2008 for coverage of the financial crisis, plus awards from the New York Press Club and National Association of Real Estate Editors. She holds a degree in journalism from the University of Massachusetts, Amherst.

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