Can Medical Debt Affect Your Credit?

How Medical Debt Affects Credit

1. Reporting to Credit Bureaus

Previously, unpaid medical bills could be sent to collections agencies and reported to the three major credit bureaus—Equifax, Experian, and TransUnion. However, as of January 7, 2025, the Consumer Financial Protection Bureau (CFPB) has finalized a rule that bans the inclusion of medical debt on credit reports and prohibits lenders from using medical information in their approval decisions.

Credit Score Impact

Before this rule change, medical debt listed on your credit report could lower your credit score, making it more difficult to qualify for loans like mortgages, auto loans, and credit cards. Though medical debt appeared on credit reports, many lenders did not factor it into their lending decisions, instead focusing on other financial indicators like payment history, income, and overall debt-to-income ratio.

Now, with medical debt no longer appearing on credit reports, an estimated $49 billion in medical bills will be removed from the records of about 15 million Americans. As a result, many individuals could see their credit scores rise by an average of 20 points, and approximately 22,000 more mortgages will be approved each year.

Debt Age

Previously, unpaid medical debt could remain on your credit report for up to seven years, gradually losing its impact over time. With the new rule, medical debt will no longer factor into credit reporting, eliminating this concern entirely.

Who is Enforcing These Changes?

While the CFPB traditionally oversaw regulations related to credit reporting, the agency is currently facing operational challenges. As a result, regulatory oversight may shift to other federal agencies, such as the Federal Trade Commission (FTC) or the Office of the Comptroller of the Currency (OCC). Additionally, state-level consumer protection agencies and attorneys general may play a role in enforcing fair credit reporting practices.

Exceptions and Protections

While medical debt will no longer appear on credit reports, it is still important to manage your medical bills responsibly. Here are some steps you can take:

• Pay Medical Bills Promptly: Timely payments can help you avoid collections actions, which could still affect your financial situation in other ways.
• Negotiate Payment Plans: Many healthcare providers offer flexible payment plans to make medical bills more manageable.
• Check State Laws: Some states have additional protections regarding medical debt collection and reporting.

The Bottom Line.

The CFPB's new rule marks a major shift in how medical debt impacts financial health. However, staying informed and managing medical expenses wisely remains crucial for maintaining overall financial stability.

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