SIOUX FALLS, SD (KELO) — Starting in July, the nation’s three largest credit reporting agencies will remove paid-off medical debt from your credit report, along with any medical collections that are less than a year old.
“Medical debt is a very, very common thing that people come up with,” said Dawson Muska, financial council coordinator for Lutheran Social Services.
Muska says medical debt is one of the main reasons people may struggle with their credit.
“You may be managing your finances well and all of a sudden you get sick or have a car accident, and depending on your level of insurance, you could owe hundreds of thousands of dollars afterwards,” said Muska.
These debts are often subject to collections and even after they are paid, they can impact your credit score for years. Equifax, Experian and TransUnion, the three major credit bureaus in the country, say this new change will eliminate nearly 70% of all medical debt currently listed on credit reports.
“Ultimately, the less negative information you have on your credit report, the higher your score will be,” Muska said.
Which will make it easier to qualify for things like a car loan or a mortgage; that’s what creditors believe is the primary goal of this nationwide change.
“They’re doing a lot of things to try to help people afford more homes,” said Dave Kelly, Fairway’s independent mortgage broker.
Kelly says this change could help more families struggling with their credit score finally qualify for a mortgage, but it requires more personal responsibility for those still facing large medical bills.
“At the end of the day, debt is debt. People are still going to have to pay that debt, it just doesn’t show up on your credit report,” Muska said. “So if you’re just looking to get loan approval, there’s not that accountability there, which I think could be a challenge.”
“We talk about it all the time with clients, just because I can approve of you doesn’t mean you can afford to,” Kelly said. “As part of your overall debt you should look at, what other bills do I have?”
The changes to the credit file will automatically take effect on July 1. Credit professionals expect even more changes to come in the credit reporting industry aimed at helping more families find affordable housing.