Why credit scores for 27 million Americans are surging

  • Last year, the three major credit bureaus announced changes to medical debt reporting.

  • They started removing unpaid medical debts of $500 or less from credit reports.

  • A new Urban Institute report found the changes improved credit scores for 27 million Americans.

A year ago, the three major credit bureaus announced they would change how they report medical debt on credit reports. The impact has been significant for millions of Americans.

In March 2022, Experian, Equifax, and TransUnion announced they would be erasing nearly 70% of medical debt from their customers' credit reports, along with removing unpaid medical debts of $500 or less. New unpaid debts would also not get added to credit reports for a full year after being sent to collections.

The bureaus started implementing those changes in July 2022, and in August 2022, they also said medical debt in collections would no longer be used to calculate Vantage scores, which is one of the most commonly used credit scoring models.

Think tank Urban Institute released a report last week analyzing the impact of the changes to medical debt collections. Based on credit bureau data, it estimated that more than 15 million consumers might have had their medical debt in collections erased in the past year.

Additionally, the report said that since the changes went into effect, 27 million consumers "experienced a significant improvement in their Vantage scores." From August 2022 to August 2023, their average score rose from 585 to 615 points, while those without medical debt experienced almost no change in their credit scores.

Still, the report noted that it "will also be important to monitor provider billing and collection practices in response to concerns that removing medical debt from credit reports could have unintended consequences, such as increased efforts among providers to obtain upfront payment before delivering care or reliance on other collection strategies."

While the changes to medical debt reporting have eased the burden on many Americans, federal agencies and some lawmakers continue to be concerned about costly medical bills. The Consumer Financial Protection Bureau found last year that inaccurate bills were costing Americans $88 billion in 2021 due to errors in hospital billing. The report said that "medical bills placed on credit reports can result in reduced access to credit, increased risk of bankruptcy, avoidance of medical care, and difficulty securing employment, even when the bill itself is inaccurate or erroneous."

And Democratic lawmakers like Sen. Bernie Sanders have pushed for the cancellation of all medical debt following the credit bureaus' announcement to change how it reports the debt.

"'Medical debt' and 'Medical bankruptcy' are two phrases that should not exist in the United States of America," Sanders wrote on X, formerly Twitter, last year. "Removing 70% of past-due medical debt from credit reports is a step in the right direction, and much more needs to be done. We must cancel all medical debt."

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