If unpaid medical bills have affected your credit score, then a recent update from Equifax, Experian, and TransUnion may be good news. The three credit bureaus are changing the way they report medical bill collection debt in some ways that positively affect many consumers.
Here’s what you need to know – and what you can do if you’re struggling with medical bills.
Changes Coming to Credit Reports
Starting July 1, medical bills that went to collections but have been paid will be removed from consumers’ credit reports.
Beginning in early 2023, consumers who still have unpaid medical collection debts of $500 or less may have those removed from their credit reports. The Consumer Financial Protection Bureau (CFPB) estimates that these changes will impact 43 million Americans and remove about 70% of all medical debt.
Another major change is that outstanding medical debt will not be reported to credit bureaus until 12 months have passed. Formerly, it could be reported after six months of non-payment. This will allow more time for consumers and insurance companies to make sure that medical bills are correct.
How this will impact consumers
Normally, when a medical debt goes to collections and is listed on your credit report, it stays on your credit report for seven years, even if you eventually pay off the debt.
It’s difficult to estimate precisely how much the change will impact consumers’ credit scores, but according to the CFPB, some consumers could see as much as a 25-point jump. This type of significant leap could result in some consumers receiving a lower interest rate on loans or being more readily approved for funding.
What spurred these changes
Lenders use credit reports to determine how credit-worthy a person is. But research from the CFPB found that paid medical debts that went to collections aren’t an accurate predictor of how likely a borrower is to repay a loan.
Another major problem is that many medical debts are erroneously reported as unpaid. Because insurance companies often take months to pay their portion of medical bills, some hospitals and doctor’s offices may send a bill to collections before an insurance company has paid their portion. While a patient is waiting for the insurance company to pay the bill, the doctor’s office may report it as unpaid and send it to a collection agency.
What consumers should do
Even though these new rules are taking effect, consumers should be proactive about reviewing their credit reports for medical bills affecting their credit scores.
Look at your credit report from all three credit bureaus. Scroll down to see if any eligible medical debt has been removed. If it hasn’t, you can file a dispute directly with the credit bureau. Remind them of the new rules and why the debt needs to be removed.
According to AnnualCreditReport.com, for a limited time, the three credit unions are offering free credit report access once a week through the end of 2022. This will make it easier to verify that relevant medical bills have been removed completely from your credit report.
If you report a debt that should be removed, be sure to check your report again after a couple of weeks. If the debt hasn’t been removed, you can contact the credit bureau again.
How to handle medical bills
If you are struggling to afford unpaid medical bills, there are some tactics you can use. First, start by contacting the medical office’s billing department directly. Be honest and tell them that you can’t pay the entire bill right now. Ask if they have a patient assistance program that you can sign up for.
Patient assistance programs may reduce the total bill or let you pay in smaller, more affordable installments. You may have to provide a copy of your most recent pay stub or tax return to prove that your income is below a certain threshold.
If you have extenuating circumstances, like a recent job loss, be sure to mention that to the billing department.
One way to save in advance for medical bills is to take advantage of a tax-advantaged account like an HSA or FSA. Some companies may even contribute to their employees’ FSAs, up to a certain amount.
Taking the time to research strategies for saving and paying bills can help you better manage upcoming or overdue medical expenses.