The Biden administration is moving to ban medical debt from credit reports.
Vice President Kamala Harris said Tuesday that the proposed rule, taken through the Consumer Financial Protection Bureau, would reduce the number of Americans with medical debt listed on their credit reports to zero, down from 46 million in 2020.
In a press call Tuesday, Harris said the move would help improve the financial health and wellbeing of millions of Americans.
Medical debt, she said, “makes it more difficult to get by, much less get ahead. That is simply not fair.”
The administration calculates that if implemented, the rule would raise affected individuals’ credit scores by an average of 20 points, and could lead to the approval of approximately 22,000 additional mortgages every year as a result of the cleaned-up credit reports.
A recent study estimated that one in five U.S. households live with medical debt, including people with health insurance; and that on average, a typical American household owes about $4,600 in medical debts.
This is simply huge. I don’t know if the average person knows how much this is going to affect Americans. It will have a massive positive benefit. I mean so much of my life was a struggle because of medical debt on my credit report, that should never have been there in the first place by the way. I’m thrilled by this this is a great change.
Could you expand on why this makes such a big difference? I’m not very knowledgeable in this area. Is medical debt treated differently than other debts by lenders?
My first thought was that medical debt, like any other debt, has financial obligations that lenders would have to know about to determine the amount of credit a person is eligible for. Wouldn’t medical debt payments impact the amount of additional debt you can afford?
It ends up on your credit report while you’re trying work it out between the hospital and the insurance company. Phone calls to one, phone calls to the other, and then, if you get it worked out, you have to file a claim with each credit reporting agency to get it removed. It’s like a full time job. And, once you get it cleared up with the hospital, you have to do the same with every medical person involved.
Ah, that makes a lot of sense. Thanks for explaining. I’ve been fortunate enough to avoid major medical expenses or debt, so I hadn’t thought of the situation you’ve described.