Anyone who’s drowning in hospital bills won’t be surprised to learn that medical debt makes up the biggest percentage of debt facing many Americans. According to the Consumer Financial Protection Bureau (CFPB), over half of all third-party debt on Americans’ credit reports is medical debt.
Did you know that it’s also the most common debt sent to collections by creditors? Once debt goes into collection, it typically ends up on a person’s credit report. The CFPB found that 20% of Americans have medical debt that’s gone to collection on their credit reports. This in turn drives down credit scores.
The problem has not gone unnoticed by the Biden administration. Vice President Kamala Harris noted, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.”
What action is the CFPB taking?
The administration – specifically the CFPB – has taken action to get medical debt excluded from people’s credit reports. They’ve made some progress, with more planned by the end of the year.
For example, medical debt under $500 no longer goes on the credit reports generated by the three major reporting companies (Equifax, Experian and TransUnion). The CFPB has proposed a rule that would keep all medical debt, regardless of amount, off credit reports. That rule is “on track,” according to the VP, to be final before the end of the year.
Why medical debt is different than other debt
Those who have advocated for this change note that medical debt is often out of people’s control. Further, it’s been determined that it’s not an accurate indicator of whether someone is a good credit risk. Vice President Harris says that “it’s not
Further, a whopping 80% of medical bills contain errors – including charges for services never provided. As the head of the CFPB notes, even when people are aware of these errors, they’re often trying to dispute them “while dealing with serious illness.”
Certainly, getting medical debt off credit reports will help millions of Americans. However, it can still be crushing to a family’s finances and cause them to fall into more debt as they struggle to pay other bills as well. If that’s where you are, it’s time to consider your options for debt relief.