I’m a credit expert – millions of Americans to get a better credit score as debt gets wiped from reports starting TODAY
BEGINNING today, millions of Americans with medical debt will get a sliver of good news.
Three major credit bureaus Experian, TransUnion and Equifax will stop including balances of less than $500 on reports.
The Consumer Financial Protection Bureau finds that 58% of the bills on credit reports are medical-related.
In total, there are 43million Americans in collection with such debt.
Ted Rossman, a credit card and senior analyst at Bankrate, calls the changes a “major win” and believes Americans will see a major increase in their credit scores.
“If you have an otherwise strong credit score, one of these medical collections could trim 100 points or more off your credit score,” Mr Rossman told The Sun.
“I think a lot of people will see a sizable bump here.”
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While the move will positively impact tens of millions of Americans, keep in mind that it does not fix the issues that many Americans are facing in the healthcare system.
For example, the country does not provide universal healthcare or a single-payer system that provides coverage to everyone.
In fact, as tens of millions of Americans remain uninsured, a recent study from peer-reviewed journal Proceedings of the National Academy of Sciences found that a single-payer system could have saved more than 338,000 lives during the pandemic.
Plus, there are 11million Americans who are saddled with medical debt that exceeds $2,000 and won't be positively impacted by the changes, according to a report by the White House.
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Moreover, 3million Americans have debt that exceeds $10,000.
Here’s everything you need to know about the changes taking effect today including making payments and managing debt.
What you need to know
What are the changes?
If you have medical debt, you’ll want to have a full understanding of these changes.
The change on July 1 will apply to all unpaid medical debt in collections that have been on credit reports for under a year, according to Mr Rossman.
Also new unpaid medical debt won't show up in collections for a year.
And if already paid, it will be removed from reports.
For everyone else, all unpaid medical debt in collections that’s less than $500 will stop being included on reports sometime in early 2023.
This assumes that amount owed has been in collections for more than a year.
For those getting medical debt removed from credit reports on Friday, July 1, there’s a chance it could reappear sometime in the next year.
However, it will then be gone for good in early 2023, Mr Rossman said.
Also, he noted that the $500 figure will apply to each medical bill – and not total debt.
So, for example, if you have unpaid debt from two separate doctors that have charged you $300 each then you will be eligible to have both come off your credit report.
How to monitor your credit report
With understanding the new changes, you’ll want to take action if necessary.
In particular, you’ll want to make sure that medical debt is coming off automatically from your credit report, which should happen by early next year.
“You could go to a place like AnnualCreditReport.com, which is a free government-mandated resource, you can check your credit reports every week there if you choose."
Mr Rossman added that if something appears out of the ordinary, you’ll want to file a dispute with each of the credit bureaus.
Debt does not disappear
Now because medical debt of under $500 won’t appear on your credit report, that means you won’t have to pay it back, right?
Unfortunately, the charges do not go away and there could be repercussions for ignoring them.
Not paying it back, could lead to getting sued and still being sent to collections, according to Mr Rossman.
He added: “collections agencies can be very persistent,”
“There are some consequences there aside from your credit score.”
Making small payments might not work either
It may not be wise to send small payments each month, whether that’s $5, $10, or $20.
Some may try this so they can avoid being sent to collections – but that does not always work in their favor.
Mr Rossman said you would need some “sort of agreement to do that,” or you could be viewed as “delinquent”.
Typically, bills will have a due date.
“If you haven't paid that full amount, and you haven't worked something out, then they're probably going to either come after you or send you to collections,” Mr Rossman said.
How to pay it back
Speak with insurance
For many, paying back hundreds or thousands of dollars worth of medical debt can be challenging to manage – especially for those who are living paycheck-to-paycheck.
A big reason why the Consumer Financial Protection Bureau is making the changes is that sometimes the insurance company is at fault and its network members are hit with surprise bills.
For example, perhaps insurance companies were supposed to cover a charge that they didn’t, or couldn’t because they were missing information.
“Medical bills are confusing if somebody's having this major hit to their credit and it was actually insurance's responsibility,” Mr Rossman said.
Set up a payment plan
It’s worth going to your doctor's hospital to see if you can work something out with them.
Here are some questions you can ask them, according to Mr Rossman.
- Could you provide a lower interest rate?
- Could you forgive some of the amount charged?
Mr Rossman added that you could potentially work out a plan that you can pay over “several year periods”.
“Maybe then you do have a more manageable plan that you can attack over time, rather than this giant sticker shock of a really big bill that's due right away,” said Mr Rossman.
Plus, you may qualify for free or discounted medical care through your local charity program.
This is offered to those who can’t afford to pay for medical treatment.
For example, to be eligible for New Jersey’s program your income must be at or below 300% of the federal poverty line.
Why you should avoid putting debt on credit card
Mr Rossman calls this step a “last resort option.
You should only do this if you exhausted your options with the institution that charged you.
“That has a really high-interest rate,” Mr Rossman said of putting your medical debt on a credit card.
“Then it's not medical debt anymore. It's treated less favorably by the credit bureaus.”
How to manage credit card debt and boost score
As a credit card expert, Mr Rossman also has some tips in this area.
The general rules are to pay your bills on time and keep your debts low.
Another is keeping track of your credit utilization, which is the amount of credit you have used versus what’s available.
The majority of industry experts recommend keeping this figure below 30%.
“A lot of people don't realize this is usually reported as of the statement date,” Mr Rossman said.
“So even if you pay in full, which is a great way to avoid interest, you may still have a high utilization ratio.”
To avoid high utilization, Mr Rossman noted you could make an extra monthly payment or request a higher credit limit.
Moreover, you could sign up for Experian boost, which allows monthly expenses including cell phone, streaming plans and utilities to count towards your credit score.
And lastly, you could even ask a parent or a friend if you can get on one of their credit cards as an authorized user.
But keep in mind if you miss a payment, or rack up big balances, the primary holder could see negative changes to their credit report.
But doing all of these things could “pretty quickly bump up your score,” said Mr Rossman.
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