Soon, most Americans will automatically increase their credit score: how and why

On March 18, three major credit bureaus announced that they will remove 2022% of medical bill debt information from consumer credit scores from July 70. Writes about it CNBC.

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Equifax, TransUnion and Experian have stated that medical bills will no longer show up on credit reports if the debt has already been paid. The agencies are also increasing the time it takes for this debt to appear on a consumer's report from six months to one year. And, starting sometime in the “first half of next year,” they will also remove outstanding debt from their records if it is less than $500.

One regulator, the Consumer Financial Protection Bureau (CFPB), was considering banning medical debt from credit ratings before the changes were announced.

As of Q2021 58, XNUMX% of the bills that showed up on people's credit histories were medical bills, according to the CFPB's recently released Healthcare Debt Report. But the report also found that medical debt collection was "less predictive of future payment problems than other debt collections" such as mortgages or auto loans.

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According to a recent study by the Kaiser Family Foundation, nearly one in 250 Americans has medical bills in excess of $XNUMX.

How will these changes affect your credit score?

Medical debt is not included on your credit report if it stays with your original provider, but once it goes into collection it will likely affect your credit score. These debts can remain on your credit report for up to seven years, although under the new rule they will now be removed if paid off.

Mentioning debt collection on your credit report can lower your credit score by as much as 110 points. Your credit score is what lenders use to determine if you qualify for a loan, as well as the interest rate on those loans.

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Ted Rossman, senior industry analyst at Bankrate, said some of the newer FICO and VantageScore algorithms are already ignoring medical penalties and focusing less on medical debt compared to other types of debt.

“The CFPB is looking into this issue even more, and this seems to have prompted the credit bureaus to completely remove medical charges from all credit reports,” Rossman said.

He added that it will help people who have paid off medical debt improve their credit score, especially for older FICO models that are required for federally backed mortgages.

"There's a realization that medical help is needed and credit bureaus shouldn't be penalizing people for it," Rossman said.

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