There’s no question that medical debt is one of the most common sources of serious financial distress and bankruptcy. That’s not likely to change any time soon. One thing that is changing is that it will no longer appear on Americans’ credit reports.
Health care providers waste no time in sending medical debt to collection agencies. When a debt goes to collections, it appears on the debtor’s credit report and drives down their credit score. The Biden administration is putting an end to that. The Consumer Financial Protection Bureau (CFPB) is finalizing a rule that would prohibit medical debt of any amount from going on a credit report. Currently, any medical debt of $500 or more can appear.
A “game changer”
In discussing the new rule, Vice President Kamala Harris recently noted, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.” That means a serious injury or illness in a family could prevent someone from achieving their goals – even though it’s been shown that medical debt is not a good indicator of someone’s creditworthiness. She called the new rule a “game changer for so many people.”
Another reason why the CFPB is working to alleviate the effect of medical debt on credit scores is because there are so many errors on medical bills that go unnoticed. As many as 80% of all bills are estimated to have duplicate and added charges and other errors that make them higher than they should be. It’s difficult enough to decipher a medical invoice when you’re feeling well. To do it while you or a loved one is ill or injured can be impossible.
This change will help prevent a medical crisis from derailing your dreams. However, as noted, it won’t prevent medical bills from piling up and overwhelming your life. If you’re dealing with medical debt that’s affecting your ability to pay other bills, it’s smart to get legal guidance to determine your best options for getting out from under it.