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Monday, December 18, 2023

Medical Debt Is Disappearing From Americans’ Credit Reports, Lifting Scores

Noam Levey
KFF Health News
Originally published 2 Nove 23

The share of American consumers with medical debt on their credit reports has declined dramatically over the past year as major credit rating agencies removed small unpaid bills and debts that were less than a year old, according to a new analysis from the nonprofit Urban Institute.

At the same time, millions of Americans have seen their credit scores improve, making it easier for many to get a job, rent an apartment, or get a car.

“This is a very significant change,” said Breno Braga, an economist at the Urban Institute and a co-author of the study. “It affects a lot of people.”

For years, medical debt has depressed credit scores, undermining the financial security of tens of millions of patients and their families.

Under mounting pressure from patient advocates and government regulators, the three major credit agencies over the last two years have taken a series of steps to remove some medical debts from credit reports, including unpaid medical bills under $500.

The changes appear to be having an impact. As of August, just 5% of adults with a credit report had a medical debt on their report, down from almost 14% two years earlier.

Urban Institute researchers also found that Americans with a medical debt on their credit report in August 2022 saw their VantageScore credit score improve over the next year from an average of 585 to an average of 615.

Here is my summary:

The article discusses a study conducted by the Urban Institute, focusing on the impact of removing medical debt from credit reports. The study reveals that eliminating medical debt from credit reports can significantly improve individuals' credit scores and financial well-being. The research found that once medical debts were removed, more than two-thirds of affected individuals experienced an increase in their credit scores, with an average rise of 16 points. This is particularly crucial as medical debt is often incurred unexpectedly, and its presence on credit reports can lead to long-lasting financial consequences for individuals, affecting their ability to secure loans or access favorable interest rates.

Furthermore, the study suggests that removing medical debt from credit reports can contribute to reducing racial and ethnic disparities in credit scores. It highlights that individuals from communities of color are disproportionately affected by medical debt and its consequences on creditworthiness. By addressing this issue, there is an opportunity to promote greater financial equity and inclusivity. The findings underscore the potential benefits of policy interventions or industry practices aimed at mitigating the adverse impact of medical debt on individuals' credit histories, thereby fostering a more equitable financial landscape.