According to the Consumer Financial Protection Bureau, millions of Americans may experience an average credit score increase of 25 points as major credit bureaus have eradicated unpaid medical collections under $500 from credit reports. The three major consumer reporting agencies in the United States revealed that they would no longer include medical debt collections under $500 in consumer credit reports. This decision comes after Equifax, Experian, and TransUnion made a series of changes to their practices since last year following a CFPB investigation into the negative impact of this type of debt on vulnerable citizens.
The analysis found that individuals with medical debts under $500 could witness a 21-point score hike within the first quarter of their last medical collection being removed from their credit report. Meanwhile, those with debts higher than $500 may benefit from a credit score increase of up to 32 points.
While this move towards improved creditworthiness is positive, lawmakers believe more should be done to alleviate the adverse effects of medical debt. Senator Sherrod Brown, Chair of the Senate Banking, Housing and Urban Affairs Committee, recently called on the three main credit bureau CEOs to cease including medical debt on credit reports. Although Equifax, Experian, and TransUnion pledged to change how medical collection debt is reported one year ago, many lawmakers maintain that this is only the first step towards a comprehensive solution.
In July 2022, the three agencies removed paid medical collection debt from credit reports and extended the time before unpaid medical collections would appear on a credit report to one year. While the CFPB’s analysis estimates that approximately 22.8 million people had at least one medical collection removed from their credit reports and 15.6 million had all medical collections eliminated from their credit reports, some lawmakers argue that the partial removal falls short by leaving those larger-dollar collections accounts on people’s reports.
According to an analysis by the Consumer Financial Protection Bureau (CFPB), the removal of medical collections has led to an increase in access to credit. After the elimination of medical debt, revolving credit increased by an average of $1,028 and the total available installment credit increased by $4,123 within six quarters. Moreover, a 20-point improvement in credit score can reduce the upfront fee on mortgages by 0.25% of the loan balance, leading to savings of up to $625 on a mortgage of $250,000.
The CFPB analysis also revealed that consumers are more likely to apply for a mortgage within the first quarter after a medical collection is removed from their credit report. Many individuals have hired the assistance of a credit report attorney to help them navigate the process of removing disputes.
The Consumer Financial Protection Bureau (CFPB) has conducted an analysis that builds on similar findings from other companies regarding the negative impact of medical debt on credit reports. VantageScore, a credit score development company, decided in January to eliminate medical debt or medical collection data, regardless of its payment status, from its VantageScore 3.0 and 4.0 scoring models, after finding that medical debt had little effect on predictive performance or borrower payment habits.
As a result, the CFPB’s latest analysis estimates that removing medical collections under $500 has led to a 20-point improvement in credit score, on average, six quarters after the last medical debt was removed, leading to a higher chance of being approved for credit and lower interest rates. However, while national credit reporting agencies have taken steps to reduce the burden of medical collections on credit reports, medical debt remains a problem for some individuals, particularly low-income families and communities of color, as well as the health care system. Many people also have difficulty disputing medical collections and having them removed from their credit reports.
