For many Americans, even those with health insurance, medical debt is their greatest source of debt. Further, the effects of many thousands of dollars of medical debt can snowball – affecting their overall financial well-being.
To make matters worse, medical debt is more often referred to collection agencies than many other types of debt. This causes it to appear on people’s credit reports, which in turn lowers their credit score. Credit reporting companies have stopped including medical debt of under $500 on credit reports. However, medical debt after a serious injury or illness (or even debt incurred when someone has a chronic illness) can be far higher than that.
As Vice President Kamala Harris recently said, “Credit scores determine whether a person can buy a home, whether they can buy a car, rent an apartment, or own a small business.” That’s why the Biden administration is taking steps to remove medical debt from Americans’ credit reports.
Specifically, the Consumer Financial Protection Bureau (CFPB) is working on a rule that would prevent all medical debt from appearing on people’s credit reports. The rule is expected to take effect before the end of the year.
Medical debt often is irrelevant to creditworthiness
One reason medical debt has been singled out from removal from credit reports is that it’s been found that it doesn’t accurately reflect a person’s creditworthiness the way other types of debt may. While people can fall into serious debt for all kinds of reasons that may be out of their control, medical debt is nearly always beyond a person’s control.
Further, the vast majority (about 80%) of medical bills have extra charges and other errors in them. These are far more difficult for people to spot than a mistake on a grocery store receipt. Looking at a hospital bill can be like trying to read a foreign language. Trying to ensure that a bill is accurate while dealing with a medical crisis (your own or a loved one’s) can be extremely difficult.
While getting medical debt off credit reports would be, as VP Harris puts it, a “game changer for so many people,” it won’t relieve the burden of medical debt. If you’re facing overwhelming medical debt, it’s smart to look at the options available to help you get out from under it – potentially including bankruptcy. Having experienced guidance can help you make the best decision for you and your family’s future.