SAN ANTONIO — Relief from low credit scores is on the way for millions of Americans. Most medical debt is about to disappear off credit reports.
Many credit scores have taken a beating because of medical debt. Currently medical debt sent to collections does not die easily. It stays on your credit report for seven.
“It’s frustrating when you pay something off and it’s still dinging you negatively,” said Nathan Grant, senior credit analyst at Money Tips.
Three things will happen to drop medical debt: July 1 medical debt that went to collections but you paid off will disappear from your credit. Secondly, new, unpaid medical debt that goes to collections will not be reported for a year. Currently, medical debt sent to collections can be reported to the credit bureaus in six months.
“That’s going to give people more time to work with their insurers, their providers, to address the bills,” Grant said. “You might be able to stop it by settling with a payment plan before anything would even go to your credit report.”
“Basically giving people six months more time to get that debt resolved, which is necessary because of the kind of quirky, difficult nature of medical debt,” Matt Schulz, a credit expert with LendingTree.com. “That’s going to keep a lot of future medical debt collections from appearing on people’s credit reports.”
Then in 2023, any medical debt under $500 that goes to collections will not be reported at all.
The changes could be meaningful for your credit score.
“It could be 100 points or more, which is really a big difference, which is really a big difference in terms of how likely you are to get approved for a loan or the interest rate you’re going to pay.” said Ted Rossman, a credit industry analyst with Bankrate.com.
These debts should come off automatically, but double-check that they do disappear.
“It should be removed from your credit reports without you having to do anything, but, as we know, mistakes happen with credit reports,” said Schulz. “Things take longer than they need to. This is just reason number 500 why it’s important to keep an eye on your credit report because if this is something holding down your credit or that you have been a victim of, it’s really important that you keep an eye on your credit report to make sure that information is removed as quickly as possible because it can really help our your score.”
Check your credit report for free at www.annualcreditreport.com. Credit reports are free weekly until the end of the year. File a dispute with each credit bureau if your paid medical debt is not automatically removed from your credit report in July.
To be clear, the changes do mean not all medical debt will come off credit reports or that medical debt does not need to be paid. Any unpaid medical debt sent to collections of more than $500 will still affect your credit score. Try to avoid collections, which will report your medical debt to the three credit bureaus, by working out a payment plan with your provider.
“Many, if not most, are willing to work with you and maybe they can give a low or no interest rate for a few years,” said Rossman. “Sometimes they even forgive some of the debt.”
“A lot of people don’t recognize this, but you can generally negotiate medical bills, at least to some degree,” Schulz said. “So it’s absolutely worth trying to do that. It’s worth being in touch with your doctor, with the hospital, with your insurer, especially if you are in a tough financial situation and you see the possibility down the road of that debt going into collections.”
Yet, do not pay medical bills this way:
“Credit cards also have really high-interest rates, averaging 16 percent," said Rossman. "If you pay medical debt with a credit card, well, now it’s credit card debt."
Credit card debt can then drop your credit score.
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