If you have any credit cards, they may have sent a notice discussing how medical debt collections began changing in July 2022. Or, if you follow CFPB News, you might have already heard about this. CFPB is the Consumer Financial Protection Bureau, an agency of the US government. They help enforce rules for financial institutions, but they also review, monitor, collect, and track consumer complaints. It makes sense that they want to ensure that consumers are aware of changes to medical debt collections, as this can affect credit scores.
Below we look at some of the medical debt collections changes on credit reports. We start by looking at information about the Consumer Credit Reporting Reform Act. We then answer some questions, such as “Will this cause changes to credit scores?” “How long does it take for credit score to change?” and “Why did my credit score drop?”
Credit Score
Before we explain the news regarding changes to calculating a credit score, you should first understand what a credit score is and why it is important. A credit score is a number that represents a person’s creditworthiness. This number is calculated by looking at such information as how much money a person already owes, the different types of accounts that a person has and how many of them, how long a person’s credit history is, and other factors. The United States has three main credit bureaus: Equifax, Experian, and TransUnion. Though a person’s credit score might change from bureau to bureau, generally, this number will be close on each report. If a person finds that their credit is much lower on one report and much higher on another, they should look to see if there are any discrepancies. At times, creditors fail to remove old information, which can impact a person’s score results.
A credit score is important because this is the information that a creditor will use to determine if you can borrow funds from them. If you haven’t started establishing credit and don’t have a credit score, you might want to start. Unfortunately, a person can’t boost their credit score overnight. However, you can apply for a secured credit card or become an authorized user on another person’s account to begin building your credit history.
The Consumer Credit Reporting Reform Act
The Fair Credit Reporting Act was created in 1970 to protect the privacy of personal information. Later, the Consumer Credit Reporting Reform Act, a related law, went into effect on September 30, 1997. This law was created to protect the information that credit bureaus, tenant screening services, medical information companies, and other consumer reporting agencies collect. Having such a law in place ensures that personal credit information is not released unlawfully to anyone that does not have a purpose specified by this act.
In the 26+ years since the Consumer Credit Reporting Reform Act was written, and as technology has improved and the ways this information gets reported have changed, there have been numerous amendments to this act.
Then in July 2022, the three major credit bureaus announced they would change the way medical debt would get reported.
What Announcements Did the CFPB Make?
When the credit bureaus explained the changes that would be made, the CFPB wanted to ensure that everyone understood. Here are some key aspects of the CFPB announcement:
- Not every demographic will be affected by the changes in the same way.
- People living in different states will not see the same changes.
- Any medical collections of less than $500 will no longer be reported. This equals about two-thirds or around 70% of the medical collections formerly on credit reports.
- In general, medical debt is no longer included in credit score calculations.
The belief is that by removing some of the factors on credit reports that can negatively impact a person’s credit rating, people will begin to see their scores rise. People with higher credit scores may be able to better qualify for credit. This may help if they buy a car, take out an installment loan, and in various other circumstances.
Changes to Credit Score
Did you have any medical collections on your credit report that have been removed? If yes, you may be grateful for the CFPB news, and you might have seen changes to your credit score.
When derogatory information is removed from a credit report, the credit score will typically go up. But removing medical collections information doesn’t necessarily mean only removing unpaid medical debts. Some positive credit information might also be removed, which can lead to changes to a person’s credit score.
How Long Does It Take for Credit Score to Change?
You might wonder how long it takes for your credit score to change. The answer is: It varies.
Though credit reports typically update once a month, or at least every 45 days, information must first be reported to credit bureaus. Additionally, though there might be information on a credit report that should be categorized as medical debt, these items might not always be clearly marked.
Do you have medical debt information that should be removed from your credit report? If you want to see if your credit score was impacted, you should check your credit score at least monthly. Many free online services will allow you to check your credit scores, including Credit Karma, NerdWallet, CreditWise, and others. You can sign up for one or more of these services and monitor how your credit score changes. You can also confirm if there are other ways to improve your credit.
Why Did My Credit Score Drop?
Once you start monitoring your credit score, you might notice that your score is lower than it was in the past. This might even have you wondering, “Why did my credit score drop?”
Many factors help determine a person’s credit score, and credit scores include much more information than just medical bills. Credit scores are determined by such factors as length of credit history, payment history, the total amount you owe, the types of accounts you have, and various other items. But what happens if your paid medical debt history was on your report for a while but got removed from your credit report? Removing it may have resulted in a shorter credit history and a lower credit score.
The free credit monitoring services listed above will most likely have explanations as to why your score went up or down. Read these explanations to see what the changes were and if there is anything you can do to improve your score.
What happens if you find any mistakes on your credit report? For any medical bill discrepancies, confirm that what is still being reported is supposed to be on your report. If not, you should contact the company that reported the misinformation. If they cannot help you, you can file disputes with the three major credit bureaus.
To be proactive and to protect yourself from future medical expenses, contact your insurance company before any procedures are done. You typically can find out in advance how much everything will cost and how much your insurance will pay.
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