Medical Debt Could Vanish From Credit Reports. What to Do Now

The burden of medical debt may soon become much lighter for millions of Americans.

The Consumer Financial Protection Bureau proposed a rule Tuesday that aims to remove medical bills from credit reports and prevent credit reporting agencies from sharing medical debt information with lenders. The rule would also forbid lenders from basing their lending decisions on medical information.

The proposal isn't expected to be finalized until early 2025, and it could face challenges. Here’s what to watch out for and what you can do now to protect your credit.

Why this matters

"Medical bills on credit reports too often are inaccurate and have little to no predictive value when it comes to repaying other loans," CFPB Director Rohit Chopra said in a press release Tuesday.

New safeguards could prevent medical debt from blocking consumers’ access to loans such as mortgages and could elevate credit scores.

Americans who have medical debt on their credit reports may see a 20-point bump in their credit scores on average, the CFPB says.

Beyond its effects on credit, the rule would provide protections that could impact consumers’ health and safety: It would prevent lenders from taking medical devices, such as wheelchairs, as collateral for loans or repossessing medical devices if a loan isn't repaid.

How does this proposal differ from recent changes to medical debt reporting?

Currently, paid medical bills don't appear on credit reports or affect credit scores. In April 2023, unpaid medical bills with a starting balance of less than $500 were removed from reports.

Also, as of July 2022, paid medical collections were erased from credit reports, and they are no longer reported by the three major credit bureaus — Equifax, Experian and TransUnion.

Despite the changes, a CFPB report found that more than 15 million Americans still had medical collections on their credit reports as of June 2023. People living in the South and low-income communities were disproportionately affected.

The new proposal would remove all medical bills from credit reports, including unpaid bills of any amount.

Would this rule apply retroactively?

Yes. If finalized, the rule would remove existing medical collections from credit reports and prevent credit reporting companies from sending medical information to lenders going forward.

Will there be exceptions to the rule?

The CFPB says there will be “very limited circumstances” where medical information could still be used in credit decisions, such as where disability income needs to be taken into account for loan consideration or to determine if someone is eligible for medical forbearance.

What to look out for next

The CFPB is accepting comments on the proposal through Aug. 12. The timeline will become clearer once feedback is addressed, but the rule is expected to be finalized early next year, a CFPB official said on Tuesday’s press call.

The 2024 election could also influence the fate of the proposal as well as similar consumer credit protections. A Biden administration fact sheet issued Tuesday cites a recent budget proposal from the Republican Study Committee that calls for defunding the CFPB.

What you can do now

Use AnnualCreditReport.com to check your credit reports for free. Make sure any medical debt information that appears is accurate and in line with the current reporting rules. Unpaid medical collections with an initial balance under $500 shouldn’t be on your reports and neither should paid collections.

If you spot an issue, dispute the error with the credit bureaus right away. Regardless of whether the CFPB’s proposal is finalized, it won't forgive medical debt or stop medical debt from going to collections. Make a plan to deal with any medical debt you may have. Review your budget and seek help if needed. Your medical provider may be willing to work out a payment plan to help you better manage the bill.