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Credit agencies to write off most medical debts from credit points

The move will improve the credit scores of millions of Americans with cheap medical debt.

WASHINGTON – The three largest U.S. credit bureaus announced Friday that they will begin removing most medical debts from the reporting process starting July, which means many Americans with overdue or unpaid medical bills will be able to erase the stains on those bills from their loans.

Three companies – Equifax, Experian and TransUnion – are responsible for determining the credit score used by banks, lending offices and other financial institutions to determine the likelihood of a person repaying a loan or debt.

The “significant changes” announced on Friday will erase about 70 percent of health care debt from consumer credit reports, TransUnion said in a statement.

The company cited data on the type of debt that most Americans take to decide whether to change months of industry research and long-term debt accounting practices.

According to the Kaiser Family Foundation, about two-thirds of medical debt comes from urgent medical expenses, usually one-time or short-term payments.

Credit reporting agencies said the COVID-19 pandemic was part of a perception of the need for a change in the number of medical bills collected by COVID-19 patients.

Some credit account models used to determine someone’s credit score for what is known as a “soft pull” check have already stopped looking at medical debt. VantageScore and FICO, both popular services for credit checks, have begun to ignore medical debts paid off a few years ago, highlighting unpaid medical debts compared to other accounts.

However, when taking a large loan, such as when applying for an initial approval to buy a home, the “hard pull” tends to use the points earned by major lending agencies.

What is changing

From July 1, any paid debt will be written off from consumers’ credit reports, ie late payments will not harm their credit.

Credit reporting agencies will also increase the period from six months to one year until the unpaid medical debt appears on a person’s loan. The extra delay is designed to give people more time to pay off their debts.

And someday in the first half of 2023, none of the three major credit agencies will receive a medical debt of less than $ 500.

“Medical debt often arises from unforeseen medical circumstances. These changes are another step we are taking together to help people in the United States focus on their financial and personal well-being, ”said Mark V. Begor, CEO of Equifax; Brian Cassin, CEO Experian; and Chris Cartwright, CEO of TransUnion. “As an industry, we are committed to helping all consumers obtain fair and affordable credit.”

What does that mean

This step is great for millions of Americans because credit score is one of the most important factors used by creditors to determine their ability to get a mortgage, car loan, or start a business. It can also affect someone’s ability to find work or rent an apartment.

The Bureau of Consumer Protection, a federal regulator, has criticized the country’s health care billing system, saying it fails consumers due to frequent accounting errors in credit reports.

The agency found about $ 88 billion in medical expenses that lowered Americans’ credit scores.

Correcting these errors can be difficult and expensive for consumers, and in some cases may not even help pay for any overdue bills. Signs against someone’s credit can last for about a decade, even if a mistake puts them there.

Without the prices of credit agencies, some people can increase their credit score by hundreds of points.

Who benefits

The CFPB estimates that by 2022, about 20% of U.S. households will have some form of medical debt.

The move by credit agencies is expected to effectively wipe out tens of billions of dollars in US consumer credit scores.

According to the CFPB, writing off debts below $ 500 is especially important for Americans, as most unpaid medical debts are below that mark.

Medical debt is different from ordinary consumer debt because Americans often do not decide to take it. Emergencies and unforeseen injuries are unpredictable, and rising inflation in the United States has left many with thinner-than-normal pocketbooks.

Credit agencies to write off most medical debts from credit points

Source link Credit agencies to write off most medical debts from credit points

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