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The number of Americans with credit file damage due to unpaid medical bills has decreased in the past two years, following a reporting methodology change by the three primary credit reporting agencies – Equifax, Experian, and TransUnion, according to a federal watchdog agency.
Despite these changes, a reported 15 million people, many of whom reside in lower-income communities in the southern US, carry lingering medical bills in their credit files, according to the Consumer Financial Protection Bureau (CFPB).
Rohit Chopra, CFPB Director, has called for further reforms aiming to clear medical debts from credit histories and is contemplating implementing a rule to exclude medical debt from consumers’ credit files.
CPFB’s report from 2022 suggested that over half the debt appearing on credit reports as in collection was related to medical expenditure, it created obstacles for securing loans, credit cards, cellphone service, housing, or employment.
Additionally, the CFPB’s studies propose that medical debt is a less accurate measure of an individual’s creditworthiness than other debts, primarily due to the American healthcare system’s complexities.
As a response to increased oversight from CFPB in 2022, the major credit reporting agencies voluntarily adjusted how they included medical bills in credit files.
These modifications led to an approximate decrease of 9% (from 14% to 5%) of Americans with unpaid medical bills on their credit reports between March 2022 and June the same year. However, although errant medical bills no longer appear on credit reports, the debt still exists and can be pursued by medical providers in most states.
Despite the progress, the credit bureaus argue against further restrictions on reporting medical bills, claiming current measures are sufficient. On the other hand, the CFPB believes that removing the medical debt from credit reports can alleviate the coercive aspect of bill collections.
By banning the inclusion of medical debt on credit files, states like Colorado and New York aim to ease the burden on consumers. However, removing medical debt entirely from credit reports could have unintended effects, like providers demanding upfront payment or increased promotion of medical credit cards.
In parallel, research and non-profit groups aim at improving consumers’ financial lives, support consumers to navigate and resolve issues, including technical or outdated information, when trying to access their credit files online. Despite the hurdles, it is recommended to regularly check credit reports to promptly detect and dispute any inaccuracies.
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