Ask an Expert: How Will Medical Collection Debt Affect my Credit Score?

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By: Anay Villar

Q: I would like to know how the new medical collection debt laws will help my credit score beginning in July through next year.

Dear reader: The three main credit reporting agencies, Equifax, Experian, and TransUnion, have announced a change in how they report medical bills on consumers’ credit reports. These are not laws; rather they are joint measures, which the credit bureaus estimate will remove about 70% of medical debt collections from consumers’ credit reports.

What the new reporting measures cover

The credit bureaus announced that as of July 1, 2022, they will no longer include paid medical debt on credit reports. In addition, they will extend the period before a collector can report an unpaid medical debt on credit reports from six months to one year. And, in the first half of 2023, they will no longer include any medical collection debt under $500.

How might this change impact your credit?

The credit reporting agencies expect to see a generally positive impact on consumers’ credit reports and credit score ranges. However, how these measures affect consumers’ credit reports individually will depend on several factors, including the information on their current credit reports and the scoring model used by lenders.

Credit reports weigh recently reported collections more negatively than older ones. Someone with recently paid medical debts removed from their credit report could expect a slight increase in their credit score. By contrast, someone with older medical debts could see little to no impact. The overall health of the report also plays a factor. Negative information such as late payments play a role in how the overall score is affected.

Another thing to keep in mind is that there are several credit scoring models out there. Each model weighs factors differently which generates variations in consumers’ credit scores. Credit scoring models like Fico 9 and VantageScore 3.0 and 4.0 already offer some of the same benefits the new measures provide. For example, these models do not include paid collections in their score calculations and weigh unpaid medical collections less heavily than other types of collections.

How to keep a balanced credit report

Start by carefully reviewing your credit reports to make sure there are no errors. From now until the end of the year, you can get weekly free credit reports from the three main credit bureaus through AnnualCreditReport.com. If you expect to have medical debts removed and don’t see it happen, you should start a dispute with the credit bureau showing the incorrect information. Starting a dispute is relatively easy and can be done online directly on the credit bureaus’ websites.

In general, to maintain a good credit score, you should mainly focus on making on-time payments, keeping your balances low, and getting new credit sparingly. Remember that the credit-building journey depends on your history and financial situation and requires patience and discipline. Good luck!