The United States government is on the verge of implementing a significant change in credit reporting. By early next year, medical debt will no longer appear on credit reports, a move expected to alleviate financial burdens for millions.
The Biden administration is finalizing a new rule to eliminate medical debt from credit reports, bringing an end to its impact on credit scores. This decision, slated to take effect 60 days after publication, is poised to remove approximately $49 billion in debt from the credit records of roughly 15 million Americans.
According to the Consumer Financial Protection Bureau (CFPB), medical debt often has been used by debt collectors to pressure individuals into payment. “People who get sick shouldn’t have their financial future upended,” stated Rohit Chopra, the CFPB director, as he emphasized the abusive nature of some collection practices.
The initiative promises an average 20-point credit score increase for those affected. It is anticipated to facilitate the approval of about 22,000 more mortgages annually, which Vice President Kamala Harris noted as a pivotal adjustment for many families seeking financial stability.
While lenders will be prohibited from using certain medical devices as loan collateral, they retain the ability to consider medical expenses under specific conditions, such as when a loan is sought for health-related reasons.
Previously, medical bills were among the most frequent collection items on credit reports, contributing to significant hurdles for Americans in obtaining loans. The ruling reflects ongoing efforts to mitigate the financial strain due to high healthcare costs, a top concern for many.
Furthermore, in 2022, major credit agencies, including Equifax, Experian, and TransUnion, ceased to report medical debt that was sent to collections once settled. Unpaid medical debt now has a one-year grace period before it appears on reports, a change from the previous six months. Debts under $500 are also excluded from reports.
In a broader push to tackle the issue, several states and local governments have erased over $1 billion in medical debt for over 750,000 people, backed by funds from the American Rescue Plan Act of 2021. North Carolina, for instance, has established a program to forgive up to $4 billion in hospital bills for residents, enabling hospitals to receive greater Medicaid reimbursements.
This regulatory shift marks a significant milestone in addressing medical debt’s role in credit reporting, potentially offering significant relief to millions struggling under its weight.
Source: Wsvn
