Help comes to many people with medical debt on their credit reports.
Beginning Friday, the big three U.S. credit bureaus will stop counting paid medical debt in the reports banks, potential landlords and others use to assess creditworthiness. The companies will also give people a year to pay off arrears on medical debt sent to collection agencies before reporting them – up from six months earlier.
Next year, companies will also stop counting unpaid medical debt below at least $500.
The companies say these steps will wipe out nearly 70% of the medical debt figured in consumer credit reports.
Patient advocates call this a huge step forward. However, they question whether medical debt should even be included on credit reports, as many see it as a poor indicator of whether someone can be trusted for a loan or rent.
“These aren’t people who bought shoes they couldn’t afford,” said Amanda Dunker of the nonprofit Community Service Society of New York. “They went to the doctor because they were sick or needed help because of an injury.”
Brooke Davis had about $1,300 in medical debt from a breast cancer scare that lingered on her credit report for years.
The 48-year-old McDonough, Georgia resident said renting an apartment was difficult and she needed a co-signer for an auto loan.
“You can’t get anything, you can’t even get a credit card if you have bad credit,” she said.
The nonprofit RIP Medical Debt canceled Davis’ debt last fall. But further health problems and job loss have pushed Davis back into debt. She is currently stuck with a swollen knee that she is unable to see her doctor for.
“I don’t have the money right now to really treat my knee, so I’ve just suffered from it,” she said.
The Federal Consumer Financial Protection Bureau said its research shows that mortgages and credit cards are better predictors than medical bills of whether someone will repay a debt.
The agency, which oversees banks, lenders and other financial institutions, has found people often don’t have time to find the best deal when seeking help and may have little control over the course of a serious illness.
Medical billing errors can show up on credit reports. And patients are sometimes unsure what they owe or whether an insurer will ultimately pay them.
The agency said earlier this year that it estimates 58% of debt in collections and loan records comes from medical bills, and delinquent medical debt is more common among blacks and Hispanics.
The bureau is attempting to determine whether unpaid medical bills should be included on credit reports.
John McNamara, an assistant director for the bureau, declined to estimate when the agency might make a decision. It could, after hearing all sides on the subject, propose a rule that would put an end to the practice.
Credit bureaus are also considering whether medical debt should remain in the reports, said Justin Hakes, vice president of the Consumer Data Industry Association.
The three national credit bureaus — Experian, Equifax and TransUnion — announced the medical debt changes in March after the bureau said it would hold those companies accountable for the accuracy of their reports.
Patient advocates said these changes would help many people.
Waiting to report past due debt will give patients time to figure out how to resolve a bill, noted Chi Chi Wu, an attorney with the National Consumer Law Center.
“There’s more leeway to negotiate with the insurance company or your provider,” Wu said. “Everyone has a story about it.”
Much of the medical debt that landed on Melina Oien’s credit report a few years ago was for bills under $500. The Tacoma, Wash. resident said she lives in an expensive place, Hawaii, where her ex-husband was stationed for the military. They were caring for a daughter who was struggling with health issues, including a rare condition that affected her metabolism.
“We would zero out our checking account every month with living expenses,” she said. “If you count down $5 on gas to your next payday, how do you pay a $30 bill?”
A military settlement package finally helped them pay off their medical debt a few years ago. Oien said her credit rating rose about 70 points just from that.
But before that happened, they had to deal with higher interest rates on all the loans they took out, and they were only able to get a mortgage after their sister gave them money to pay off some debts.
“It was embarrassing, it was very stressful,” said Oien, who now works as a patient advocate.