Medical Collections

On July 1, 2022, some positive changes took effect regarding medical collection practices. First, all paid medical collections started falling off credit reports, and second, collection agencies were required to wait one year before reporting a medical debt to the credit bureaus. This was to give the consumer a chance to pay the debt before it was reported. All of this was a result of the “Medical Debt Relief Act (2021-2022).” In 2023, there will be some additional changes happening.

Beginning first quarter 2023 all unpaid medical collections under $500 should start being removed from all FICO based credit reports. However, this does not mean that they will all just instantly fall off. According to the bureaus and the Consumer Financial Protection Bureau (CFPB), they were to begin dropping off starting in January but that will most likely not happen until closer to the end of the first quarter or the beginning of the second. During that same time period Vantage Score based reports will be eliminating ALL paid and unpaid medical debt, regardless of the amount. Credit reports that are Vantage Score based are those you would find on places like Credit Karma and NerdWallet.

Even with these changes, the CFPB predicts that medical collections will still represent about 57% of the collections that are found on credit reports as medical costs can run into the thousands and even tens of thousands of dollars. Because of this, the $500 cap on collections being removed will only affect a relatively small number of reports with a large amount that will remain.

What do you do if you have large medical debts? A good start is to try to get each of them down to at least the $500 mark. Once they reach $500, they should be removed from the credit report altogether. If a consumer is unable to pay them down they should follow up with their insurance company to make sure the company did pay the amount of the bill they are obligated to pay. A consumer can also try to renegotiate the amount owed with the medical provider or hospital. There are many that will settle for less than what is actually owed as they would rather get paid something rather than nothing at all. One can also hire a “medical billing advocate” to try to negotiate the bills on a consumers’ behalf. Whatever route taken; the goal is to get the bill down to that $500 amount.

Why is this happening? It has long been questioned whether medical debt is an accurate prediction of someone’s ability to repay a debt. After months of research and gathering data, it showed that a lot of medical debt is inaccurate; either it doesn’t belong to the consumer at all or was inaccurately placed with a collection agency. Some medical debt is so small that the consumer wasn’t even aware that there was something owed and had assumed that the insurance company had covered the debt. These discoveries and realizations precipitated the decision for the removal of some of this debt, beginning with the removal of ALL paid medical debt.

The damage one medical collection can do to a credit score can be extreme. One medical collection for any amount can easily drop a score 100 points depending on what information the rest of the credit report contains. As the CFPB continues their research, hopefully it will lead to someday removing all medical debt from FICO based credit reports, paid or unpaid, regardless of the amount. For now, what is being done is definitely a step in the right direction for consumers and especially potential home buyers.