Credit Bureaus Beginning to Remove Medical Collection Debt

• Equifax, Experian, and TransUnion, the three credit reporting agencies, released a joint statement stating they will be removing 70% of their users’ medical debt information.
• These credit agencies removed a large portion of medical debt information to make the users’ credit reports more accurate. This was done by excluding medical bills lower than $500 and increasing the length of time a person has to pay off their bills from six months to one year before it appears on their report. 
• As medical bills can be quite costly, following the steps below will help you accommodate these expenses while reducing the chances of taking on debt.

On March 18, 2022, the three credit reporting agencies, Equifax, Experian, and TransUnion, have announced users’ medical collection debt will be removed from their credit reports if they have been paid. Also, beginning in 2023, another implementation these collection agencies will make is any unpaid medical debt lower than $500 will be removed altogether.  

Reasoning Behind These Reporting Agencies Removing Medical Collection Debt

Due to the COVID-19 pandemic, more people visited hospitals and other medical institutions to receive care. However, some of these people could not afford to pay for their services, and these unpaid medical bills would negatively affect their credit scores. 

As it would be unfair to lower the credit score of those who have unpaid medical debt, these debt collection agencies took action by increasing the length of time to pay the debt, removing small medical expenses, and removing medical debt information from their users’ credit reports if it has been paid already.

According to the Consumer Financial Protection Bureau (CFPB) report, 58% of bills in consumers’ credit reports were related to medical services. As these unpaid bills can consequence one’s credit score, this led to the ultimate decision of these collection agencies to increase the length of time a person has to pay off these bills before they appear on their account. 

When These New Rules be Put into Effect

Beginning on July 1, 2022, users will have an increased time period to pay their medical bills, from 180 days to one year. Typically, the waiting period before unpaid debt appears on a user’s collection account ranges from 60 to 180 days. However, due to the surge in medical visits because of the pandemic, the short time period to pay medical bills made it challenging for those in a tight financial position to make ends meet.

Secondly, as mentioned above, removing any medical debt lower than $500 will be implemented at the beginning of 2023. $500 is a minuscule amount for medical expenses compared to some of the more expensive procedures. Therefore, removing the inexpensive procedures from a credit report lowers the chance that a user will negatively affect their credit score by a minute medical expense.

How to Lower Medical Debt

The removal of small medical expenses and the increase in time available to pay medical debt make it easier for users to have paid medical bills in full prior to the credit agencies reporting it on their credit report. However, there are some other ways to lower medical debt outlined below.

Sign up for Health Insurance

One key issue pertaining to seeking medical attention is the high costs. As a result, this discourages many people to not receiving medical help as they do not have enough money to pay for the associated bills. Thus, one key counter to this issue would be to sign up for health insurance. 

When looking at health insurance, one vital factor that must be considered is the frequency of medical visits. Suppose you believe you will be making frequent trips to a medical institution. It makes more sense to switch to a healthcare plan with a higher premium but a lower deductible, as the health insurance company would cover most of the costs incurred.

On the other hand, if you rarely seek medical attention, it is better to have a plan with lower monthly premiums and high deductibles. This is because you would pay less for premiums each year and pay a higher cost of care when you seek medical attention. 

Make a Savings Fund

No one can predict the future and determine when a person may need to seek medical attention. Therefore, to minimize the chance of going into medical debt, having a savings fund equates to three to six months’ worth of living expenses. This amount of money set aside for a rainy day makes it easier to pay any outstanding medical bills from a financial standpoint.

Furthermore, suppose the money within the emergency fund is insufficient to pay off the whole bill. In that case, it sets you up for a cheaper payment plan, which will result in a lower amount being paid each month, reducing the chance of incurring high amounts of medical bill debt.

Other Ways to Increase Credit Score

As mentioned before, there is a possibility that incurring medical debt will lower your credit score if you fail to pay off the medical expenses before the one-year deadline. Therefore, to minimize the risk of your credit score dropping, here are some techniques that could help you increase your credit score and balance out the risk of your credit score dropping. 

Pay Bills on Time and in Full

One of the leading causes of a lower credit score is not paying credit card bills on time. When a person fails to pay their credit card bill in full, they must make late payments, and this causes the incident to stay on your credit report for seven years. Furthermore, as this information is accessible by financial institutions, this incident could result in a higher interest rate when taking out a loan or losing out on receiving the loan altogether.

Do Not Reach your Credit Card Limit

Although credit card institutions give you a high credit limit, this does not mean that you should reach it. The general rule of thumb is not to spend more than 30% of your credit limit, and if you reach this limit, pay off the outstanding balance first before using it again. If you go over it, it could result in your credit score potentially going down. 

Keep Track of your Transactions

When buying things using your credit card, keep your receipts, keep track of your purchases, and payment due dates. Keeping track of your activity will help you stay organized and make payments on time, resulting in better spending habits, and a lower chance of incorrectly using your credit card. 

It is impossible to predict the future, especially regarding a person’s health. Therefore, it is essential to always think about things that may happen in the future by financially preparing yourself, especially for medical events. By following the steps mentioned above, you can prepare yourself better for any unexpected circumstance that may arise, and improve the chances of your credit score not decreasing, should you incur any debt. 

What are your thoughts on these credit reporting agencies removing a portion of the medical debt information? Let us know in the comments below.