Credit report

What if medical debt is not part of your credit report?

Some 43 million Americans have unpaid medical bills that show up on their credit reports. Now the three largest credit reporting companies, Equifax, Experian and TransUnion modify the weight they give to this debt. That is, they remove almost 70% of it, so it won’t be a factor in reports that can affect whether people get mortgages, credit cards, and jobs.

The type of debt we are talking about is medical debt: debts that have not been paid and that have been passed on to collection agencies. From July, credit agencies will write off debts that have already been paid. They also lengthen the time before they show up on credit reports from six months to a year. Next year they will stop including debts under $500.

Rohit Choprathe director of the Consumer Financial Protection Bureau, says this type of debt is not a good predictor of people’s ability to pay their other bills.

“When you borrow, you often make a conscious choice to take out a loan. But when you have medically necessary care — if you have an accident, or you have to go to the emergency room, or you’re diagnosed with cancer — it’s usually not something that’s a typical credit obligation,” said Chopra.

This change is in line with other updates that credit agencies have made in recent years, says Ted RossmanSenior Industry Analyst at Bankrate.com.

“For example, a few years ago credit bureaus started ignoring things like public records, tax liens, library fines that went to collections,” Rossman said.

This new change will affect a lot of people, because most medical debt collection debts are not that big, according to Benedic Ippolitoeconomist at the American Enterprise Institute, a right-wing think tank.

“There’s no doubt that medical collections can play an important role in someone’s credit score,” Ippolito said. “That’s probably especially true for people who have otherwise good credit.”

To be clear, debts are not forgiven. People with medical debt still owe them. But CFPB’s Rohit Chopra says he’s cautiously optimistic the move could help people.

“When they’re applying for a job, or credit, or an apartment, and there’s a credit check, it’s less likely to get them in trouble,” Chopra said.

There are also intangible benefits to having a good credit rating. Marc Rukavinawho leads the Medical Debt Project at Community Catalyst, a nonprofit advocacy organization, points out that some use it as a character indicator.

“Even outside the credit domain, credit reports are used for other purposes,” Rukavina said. “That way they can do even more harm and damage to people.”