The three major credit reporting agencies announced Friday that they will strip 70% of medical debt information out of consumers' credit reports, starting July 2022.
The bureaus — Equifax, TransUnion and Experian — say that medical collection debt will no longer appear>How these changes will affect your credit score
Medical debt is not included as part of your credit report if it remains with your original service provider, but once it goes to collections it likely affects your credit score. These debts can linger on your credit report for up to seven years, although the new rule will now remove them if they are paid off.
An instance of collection debt in your credit report can decrease your credit score by as much as 110 points. Your credit score is what lenders use to determine whether you'll qualify for loans, as well as the rate of interest on those loans.
Already, some of the newer FICO and VantageScore algorithms disregard paid medical collections and place a lower emphasis on unpaid medical debt compared to other types of debt, Ted Rossman, a senior industry analyst at Bankrate, said in a statement.
"The CFPB has been poking around this issue even further, and that seems to have encouraged the credit bureaus to completely remove paid medical collections from all credit reports," said Rossman.
This removal will help people who have paid medical collection debt increase their credit scores, especially for older FICO models that are required for federally-backed mortgages, he added.
"There seems to be an acknowledgment that medical care is essential and should not be penalized by the credit bureaus," Rossman said.
