Medical Debt Is Now Banned From Credit Scores

Imagine this: You’re trying to buy your first home, but suddenly, a mountain of medical bills from years ago shows up on your credit report. These bills, which you thought were settled or even incorrect, now threaten your dream of homeownership.

This scenario has been all too common for millions of Americans. But thanks to a new federal rule, that’s about to change.

The Consumer Financial Protection Bureau (CFPB) has finalized a rule that will remove medical debt from credit reports, potentially boosting the credit scores of millions of people.

What’s Changing: Medical Debt is Being Removed from Credit Reports

The CFPB’s New Rule

The CFPB has just announced a rule that will remove an estimated $49 billion in medical debt from the credit reports of over 15 million Americans.

This means that unpaid medical bills will no longer appear on your credit report, where they could have prevented you from getting a mortgage, car loan, or small business loan.

Why This Matters

Medical debt is the most common type of debt in collections, surpassing credit cards, auto loans, and utilities. For many Americans, medical bills are a result of unexpected emergencies or complications, not a reflection of their ability to pay other bills.

By removing medical debt from credit reports, the CFPB is acknowledging that these bills don’t necessarily predict whether someone will repay a loan.

The Impact on Credit Scores

The CFPB estimates that this change could increase the credit scores of those affected by an average of 20 points. For some, this could be the difference between being denied a loan and being approved for one.

A higher credit score can also mean lower interest rates, saving you thousands of dollars over the life of a loan.

Who Benefits: Millions of Americans Get a Financial Boost

The People Behind the Numbers

Over 100 million Americans have medical debt, and this rule will directly impact over 15 million of them. But the benefits don’t stop there. By improving credit scores, this rule could lead to 22,000 additional mortgages being approved each year.

This is more than just a financial boost; it’s a lifeline for families trying to get back on their feet.

The Broader Economic Impact

When millions of people see their credit scores improve, it can be great for the economy. More people qualifying for loans means more spending, more investing, and more economic growth. This could lead to a stronger housing market, increased car sales, and more small businesses getting off the ground.

The Significance for Personal Finances

For individuals, this rule is a chance to rebuild credit and improve financial health. It’s a reminder that unexpected medical bills shouldn’t dictate your financial future.

Actionable Tips: How to Take Advantage of This Change

1. Check Your Credit Report

Now is the perfect time to check your credit report and see if any medical debt is still listed. If you find any, you can dispute it with the credit reporting agencies. This could give your credit score a quick boost.

2. Monitor Your Credit Score

With the removal of medical debt, your credit score could increase significantly. Monitor your score regularly to see how it’s improving. This will give you a better idea of how much you can borrow and at what interest rate.

3. Consider Refinancing

If your credit score improves, you might be able to refinance existing loans at a lower interest rate. This could save you thousands of dollars over the life of the loan.

4. Plan for the Future

While this rule is a big help, it’s still important to plan for unexpected medical expenses. Consider setting up an emergency fund or looking into health savings accounts (HSAs) to protect yourself from future medical debt.

Conclusion: A Brighter Financial Future Ahead

The removal of medical debt from credit reports is a monumental change that could impact millions of Americans. It’s not just about improving credit scores; it’s about giving people a fair chance to rebuild their lives after a medical emergency.

FAQ: Medical Debt Removal from Credit Reports

What is Medical Debt?

Medical debt is the money you owe for medical services. This can be from hospitals, doctors, or other healthcare providers. It’s a big deal because it can mess up your credit report. A bad credit report makes it hard to get loans for things like houses, cars, or starting a business.

What is the New Rule About Medical Debt?

The Consumer Financial Protection Bureau (CFPB) has made a new rule. This rule will take away medical debt from credit reports. Here’s what you need to know:

• $49 Billion in Debt Removed: The rule will erase $49 billion in medical debt from credit reports12.
• 15 Million Americans Helped: This change will help over 15 million people12.
• Credit Score Boost: People with medical debt might see their credit scores go up by about 20 points1342.

How Does Medical Debt Affect My Credit Score?

Medical debt can lower your credit score. This makes it hard to get loans for things like houses, cars, or starting a business. But with the new rule, medical debt won’t show up on your credit report anymore. This can help your credit score go up.

Why Is This New Rule Important?

Impact on Credit Scores

A better credit score means better chances of getting loans. With this rule, more people can get approved for mortgages, car loans, and small business loans. The CFPB thinks this change could lead to 22,000 more mortgages being approved each year34.

Economic Opportunity

Vice President Kamala Harris said it best: “No one should be denied economic opportunity because they got sick or experienced a medical emergency”156. This rule helps make that a reality. It gives people a fair shot at getting loans and building a better future.

What Are the Long-Term Benefits?

Financial Stability

Removing medical debt from credit reports can help people be more financially stable. It means they won’t be punished for getting sick. This can lead to better financial health for families and communities.

Investing and Finance

For investors, this rule can mean more people will be able to buy homes and start businesses. This can boost the economy and create more opportunities for investment. It’s a win-win for everyone.

What Should I Do Now?

Check Your Credit Report

Even with this new rule, it’s important to check your credit report. Make sure all the medical debt is gone. If you see any mistakes, you can dispute them.

Build Your Credit

Use this chance to build your credit. Pay your bills on time and keep your debt low. A good credit score can open up many doors for you.