Your credit report: the impact of eliminating medical debt
By: Charlestien Harris
Your credit score is very important when it comes to how you interact with the financial world around you. One of the main areas of concern for many people is how medical debt has negatively affected their credit scores for years. Statistics show that one in five Americans had a medical bill that they could not afford to pay at the time of treatment.
According to a Consumer Financial Protection Bureau (CFPB) report released earlier this year, at least 20% of US households report having a significant amount of medical debt on their credit report. To be clear, that same report indicated that at least $88 billion in medical debt was on consumer credit files, representing 58% of all collection business lines in June 2021. That makes debt medical most of the business lines in collections, above credit cards. and student loans, with the majority of those bills under $500.
As of July 1, the three major credit bureaus – Equifax, Experian and TransUnion – will now be remove any medical collection debts that have been paid of a consumer’s credit report. In March of this year, an announcement from the bureaus said this rule change would remove 70% of medical collection debt from consumer credit reports. Previously, medical debt – even when fully paid off – could stay on your credit report for up to seven years, which can reduce your credit score enormously.
In the first half of 2023, the credit bureaus plan to remove and unreport all medical collection debts under $500. The huge difference this will make will be in addition to the elimination of paid medical collection debts, and the credit bureaus will now give consumers a year to settle unpaid medical bills before they are included in credit reports.
Medical collections will be removed from a credit report if the bills are paid by a health insurer. If the medical bill is cashed in error and is less than 180 days old, or if the medical bill is paid by your insurance, you should be able to dispute the error with the credit bureau and have it removed. Medical debt recoveries should come out of your reports if the health insurance company pays the balance.
If your medical debt is not removed from your report by the bureaus, or if your insurance company refuses to pay, here are some steps you can take to resolve your issues:
- Determine the legitimacy of the account. When reviewing the collection listed on your credit report, make sure the debt belongs to you. You can send a validation letter to the credit bureau to verify if the debt really belongs to you. If that is the case not belong to you or that you made payments on time to reimburse it, dispute the error to remove the collection from your report. You can find examples of validation letters on lineor you can get a copy from a HUD Certified Housing Counselor.
- Gather your evidence. Gather as many documents as possible to prove that the invoice has been paid. Ask for payment records at your doctor’s office. Find copies of canceled checks or find old credit card statements. You can also provide a statement from the insurance company that the bill has been paid. Be sure to file your dispute with any credit bureau that reports the error. (And always check your credit reports for all three offices.) You can get a copy of the free weekly credit reports by going to www.annualcreditreport.com until the end of this year.
- Don’t stop communicating. The Fair Credit Reporting Act obliges credit bureaus to follow up on all disputes relating to credit reporting errors. Continue to communicate with the companies to check on the status of your dispute and be prepared to provide additional documentation upon request.
- Request a goodwill removal. If there is a paid collection listed on your report, you can simply ask the debt collector or original collector to have it removed. This usually involves sending the debt collector or collection agency a goodwill deletion letter explaining your mistake, asking for forgiveness, and showing how your payment history has improved. With this option, there’s no guarantee that the negative rating will be removed from your credit report, but it’s worth a try. When the debt in question is legitimate and you can’t convince the debt collector to remove it from your report, your only option left is to wait. The collection should automatically fall off your credit report seven years from the date the account first became delinquent.
Research has shown that medical debt can have adverse effects on a person’s mental and physical health, as well as their financial health. Medical debt can lead to seizure of assets, garnishments of wages and an increased likelihood of filing for bankruptcy. These debts have significant long-term financial consequences on consumers due to transfer to collection agencies, as well as negative effects on the credit report. Additional facts about the new reporting rule and how it may affect your consumer credit report can be found at www.consumerfinance.gov/rules-policy/medical-debt/. For more information on this and other financial topics, you can contact me at [email protected], or 662-624-5776.
Until next week – stay financially fit!