The removal of medical collections from credit reports has significant implications for individuals burdened by medical debt. Medical expenses can create financial hardships that affect creditworthiness and limit access to credit, housing, and employment. In response to this issue, the three nationwide consumer reporting companies recently announced reforms aimed at alleviating the impact of medical collections on credit reports. This article explores the effects of these reforms and their potential benefits for consumers.
The Impact of Medical Collection Reporting Reforms:
The reforms implemented by consumer reporting companies have brought about several changes in medical collection reporting. Firstly, medical collections under $500 were removed from credit reports by the end of March 2023. In addition, paid medical collections were already removed from credit reports, and the reporting delay for medical collections was extended from six months to one year after the first delinquency. These changes are expected to have a positive impact on individuals, potentially leading to increases in credit scores within three months of the reforms.
Factors Influencing the Persistence of Medical Collections:
The persistence of medical collections on credit reports is often influenced by various factors. For instance, medical collections are rarely visible on credit reports for the full seven years allowed by the Fair Credit Reporting Act. Furthermore, the lack of updated information provided by collectors and the disputes raised by consumers regarding the legitimacy of medical debts contribute to the removal of these collections from credit reports. Additionally, the Fair Debt Collection Practices Act requires debt collection furnishers to investigate disputes and provide debt verification.
The Implications of Reporting Change:
The removal of medical collections under $500 from credit reports is estimated to have affected approximately 22.8 million people, with at least one medical collection being removed for each individual. This change has resulted in a significant impact on credit scores, with an average increase of 25 points observed in the quarter following the removal of the last medical collection. Moreover, individuals with medical collections under $500 experienced an average credit score increase of 21 points, while those with higher-value medical collections saw a 32-point increase.
Increased Credit Availability:
The removal of medical collections from credit reports also correlates with increased credit availability. Individuals experienced a three percent increase in revolving and installment credit approximately eighteen months after the last medical collection was removed from their credit report. Although a temporary association was observed with first-lien mortgage inquiries following the removal of medical collections, this effect did not persist. This suggests that individuals may proactively seek to remove medical collections from their credit reports when applying for mortgage credit.
The recent reforms in medical collection reporting offer significant relief for individuals burdened by medical debt. The removal of medical collections under $500 from credit reports has shown positive impacts, leading to improved credit scores and increased credit availability. By addressing the financial implications of medical debt, these reforms contribute to a more equitable and well-functioning consumer reporting system, benefiting millions of individuals across the country.