MILWAUKEE — The Consumer Financial Protection Bureau estimates $88 billion in medical debt is on consumers' credit reports.
"Your credit report is used to determine whether or not you get a loan, whether or not you get a car, or you get a mortgage for a house. It also may determine how much you may pay in terms of your interest fees for loans," said John McNamara, Assistant Director, Consumer Credit, Payments, and Deposits Markets with the Consumer Financial Protection Bureau (CFPB).
A new move by the three major credit reporting agencies, TransUnion, Equifax, and Experian, can help many dealing with this type of debt.
Earlier this month, the credit bureaus announced starting July 1, if your paid medical debt that went to collections is on your credit report, it will be wiped off.
"These black marks on a credit bureau have a profound impact on consumers' lives. Where they borrow, what they borrow, where they can live, where they work - it's very very important," said McNamara. "Some employers may take a look at it and it may be something that is used in determining whether you get a job."
"Another area is apartments; may sometimes run a credit report to determine whether or not they will rent an apartment to you," he added.
The CFPB supervises the three biggest credit reporting agencies and recently released a report on medical debt and the burden it has on so many people in our country.
McNamara explains the upcoming changes also include a longer grace period before unpaid medical collection debt shows up on a credit report. Instead of it appearing after six months, it will now be after one year.
"Presumably, that pause allows any sort of charity care, private or public insurance, things like that to pay that debt so the consumer doesn't get a black mark on their credit report by something that was going to be taken care of by their insurer," McNamara said.
Another change the credit bureaus recently announced is starting in the first half of 2023, medical collection debt less than $500 will not be added to credit reports.
"That's a fairly big move. Our research showed something like at least 62% of medical debt collection tradelines on consumers' reports are under $500," said McNamara. "The bureau is encouraged and cautiously optimistic that these moves are a good start and we're watching this closely."
The CFPB website offers advice for consumers on how to deal with debt collection and how to spot if a debt collector is breaking the law.