Your Credit Report: The Impact of Medical Debt Removal
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 been negatively affecting their credit scores for years. Statistics show that one in five Americans had a medical bill they could not afford to pay at the time of care.
According to a Consumer Financial Protection Bureau (CFPB) report released earlier this year, at least 20% of U.S. households report having a significant amount of medical debt on their credit report. To be clear, that same report stated at least $88 billion in medical debt was on consumer credit records, accounting for 58% of all collection tradelines as of June 2021. This makes medical debt the largest portion of trade lines in collections, above credit cards and student loans, with the majority of these bills being under $500.
As of July 1, the three major credit bureaus – Equifax, Experian, and TransUnion – will now remove all medical collection debts that have been paid from a consumer’s credit report. In March of this year, an announcement made by the bureaus stated that this rule change would remove 70% of medical collection debt from consumer credit reports. Previously, medical debt – even when paid in full – could remain on your credit report for up to seven years, which can reduce your credit score tremendously.
In the first half of 2023, the credit bureaus plan to remove and no longer report all medical collections debt under $500. The huge difference this will make is in addition to the removal of paid medical collection debts, and the credit bureaus will now give consumers one year to address outstanding medical bills before they are included on 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 in collections by 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 collections have to come off 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 get your issues resolved:
- Determine the account’s legitimacy. While reviewing the collection listed on your credit report, make sure the debt belongs to you. You can send a letter of validation to the credit bureau verifying whether the debt is actually yours. If it does not belong to you or you made on-time payments to pay it off, dispute the error to remove the collection from your report. You can find sample letters of validation online, or you can get a copy from a HUD-Certified Housing Counselor.
- Gather your evidence. Collect as much documentation as you can to prove the bill was paid. Ask for payment records from 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 showing the bill has been paid. Make sure to file your dispute with any credit bureau that is reporting the error. (And always check your credit reports from all three bureaus.) You can get a copy of free weekly credit reports by going to www.annualcreditreport.com through the end of this year.
- Don’t stop communicating. The Fair Credit Reporting Act requires the credit bureaus to follow up on all credit reporting error disputes. Keep communicating with the companies to check on the status of your dispute, and be prepared to provide additional documentation if requested.
- Ask for a goodwill deletion. 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 is no guarantee the negative mark 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 delete it from your report, your only remaining option is to wait. The collection should fall off your credit report automatically 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 result in seizure of property, wage garnishments, and an increased likelihood of filing bankruptcy. These debts have significant long-term financial consequences on consumers because of the transfer to collection agencies, as well as the negative credit report effects. 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 Charlestien.firstname.lastname@example.org, or 662-624-5776.
Until next week – stay financially fit!