KEY POINTS
- The Biden administration aims to have medical debts excluded from credit reports in order to prevent lenders from using medical data to make lending decisions.
- Medical expenses are not a reliable measure of an individual’s likelihood to settle their debts.
- The leading cause of bankruptcies in the United States is medical debt.
Medical debt is a serious issue. The United States has the highest healthcare costs compared to other countries, and medical debt is cited as the primary cause of bankruptcy filings among Americans, as reported by the American Medical Association (AMA).
Medical debt can also cause chaos in an individual’s life. budget This can lead to a decrease in their credit score and create obstacles in obtaining credit in the future.
Considering these concerns, the Biden administration is advocating for the elimination of medical debt from credit reports and the prohibition of lenders from using medical debt to make decisions.
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A move in the correct path
A couple of years ago, the three major national credit reporting agencies – Experian, Equifax, and TransUnion – declared their intention to eliminate medical debts below $500 from credit records. While this move was a positive development for numerous American consumers, it only addressed a portion of the issue. Despite this change, a staggering 15 million individuals in the United States were still burdened with a total of $49 billion in medical debts on their credit reports.
The Biden administration’s proposal would require credit reporting agencies to take more extensive actions.
How this could affect you
The important factor is how removing medical debt from credit reports will affect the average American. If your credit report shows medical bills as outstanding debts, here is how this modification could help you.
Your credit score will receive an increase.
According to the Consumer Financial Protection Bureau (CFPB), the removal of medical debt from credit reports can lead to an average increase of 20 points in Americans’ credit scores. This sudden improvement in credit scores could make it easier for some households to be eligible for loans or to apply for credit cards.
Your medical concerns will not be made public.
Although credit reports don’t provide detailed information about medical debt, they do indicate the presence of unpaid medical expenses, suggesting that you or someone in your household has experienced health issues.
While it might not be significant for a car loan application, it could influence a potential employer’s decision to hire you after reviewing your credit history or a landlord’s belief in your ability to consistently pay rent. Essentially, it brings up concerns that should not be brought up.
Your medical devices cannot be taken back.
The suggested regulation aims to prohibit lenders from seizing medical devices such as wheelchairs in case the borrower is unable to make payments.
Debt collectors are now prohibited from using medical debt as a tool for collecting payments.
As per the Consumer Financial Protection Bureau (CFPB), medical debt collectors take advantage of the credit reporting system to pressure individuals into settling debts, even those that might not be valid. The CFPB highlights that numerous collectors engage in a tactic called “debt parking.”
This is the way it operates: Debt collectors buy medical debt at a reduced price and add it to your credit report without informing you. You may only realize the impact of this medical debt on your ability to get a loan when you apply for credit.
If you are in dire need of the loan, you might feel pressured to settle the medical bill in order to remove it from your credit history and enhance your credit rating. Once medical debt is no longer visible on credit reports, debt collectors are unable to employ this coercive strategy.
This does not indicate that the debt will be eliminated.
While it is true that there are advantages to having medical debts removed from your credit report, you will still need to take responsibility for them. settling the debt The purpose of eliminating the debt from your credit report is to simplify the process of managing your financial obligations and to help you regain financial stability.
Comments and feedback on the Biden administration proposal will be accepted by the CFPB until August 12, 2024. If everything goes as planned, the rule will be completed and implemented in the beginning of next year.
