Medical Debt No Longer Included in U.S. Credit Reports: What It Means for You

The Consumer Financial Protection Bureau (CFPB) has introduced a groundbreaking change to the U.S. credit reporting system, banning medical debt from credit reports. Effective January 7, 2025, this move is poised to impact millions of Americans, especially those aiming to secure a mortgage. Here’s what you need to know.

Impact on Credit Scores

This new rule will remove approximately $49 billion in medical debt from the credit reports of about 15 million people. Credit scores for affected individuals are expected to rise by an average of 20 points, which could lead to easier credit approvals and better financial opportunities.

What It Means for Mortgage Approvals

With higher credit scores, an estimated 22,000 additional affordable mortgages are expected to be approved each year. Studies have shown that medical debt is not a reliable predictor of an individual’s ability to repay loans, making this change a critical step toward financial fairness.

A Timeline of Changes

This is not the first time medical debt has been addressed:

• July 2022: Paid medical collections were removed from credit reports.

• April 2023: Unpaid medical collections under $500 were also excluded.

The latest rule, set to take effect 60 days after its publication, eliminates medical debt altogether from credit reports.

Challenges and Concerns

Despite its benefits, there are still challenges to consider:

• Debt Reclassification: Some medical debts may be reclassified and resold under different categories, allowing them to reappear on credit reports.

• Legal Consequences: Unpaid medical bills can still result in wage garnishments or other legal actions.

• Industry Pushback: The medical and credit reporting industries may contest the rule in court, which could delay or impact its implementation.

Broader Economic Implications

The rule’s impact extends beyond individual credit reports. With increased credit availability—averaging $1,028 more in revolving credit and $4,123 in installment credit—consumers will experience improved financial flexibility. Additionally, the reduction of medical debt could decrease bankruptcy filings, which surged by 18% in 2023.

In Conclusion

The removal of medical debt from credit reports represents a significant step toward financial equity. For millions of Americans, this rule will make it easier to access credit and achieve milestones like homeownership. However, as with any major policy change, it’s essential to stay informed about potential challenges during the transition period.