New Federal Rule Will Wipe Medical Debt From Your Credit Score

Outstanding medical debt can no longer impact Americans’ credit scores, according to a rule finalized Tuesday by the Consumer Financial Protection Bureau (CFPB).

The rule prohibits credit reporting agencies from including medical debt when calculating credit scores and bars lenders from considering medical information when assessing borrowers.

The CFPB estimates the rule will wipe $49 billion in medical bills from the credit reports of about 15 million Americans. That could make it easier for people with credit reports impacted by medical debt to obtain jobs, open credit cards, and access affordable mortgages and other loans.

Medical bills are often the result of unavoidable medical complications or contain errors. The CFPB said past-due medical bills are often inflated, reflect multiple charges for the same service, or charge for services a person never received.

“People who get sick shouldn’t have their financial future upended,” Rohit Chopra, director of the CFPB, said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

Lenders will also be prohibited from using medical information about medical devices, such as prosthetic limbs, for the purpose of using them as collateral for a loan.

According to an investigation by KFF Health News, credit reporting is the most common tactic hospitals use to compel patients to pay their medical debts. The CFPB estimated the rule would boost the credit scores of people with medical debt by an average of 20 points.

In 2022, the three largest credit reporting agencies said they would no longer include some medical debt from credit reports. Even after that change, credit reports for some 15 million Americans still reflected medical debts, leading some activists to push for a national ban.

The Biden administration, which proposed the rule in June, finalized it less than two weeks before leaving the White House. Some congressional Republicans have threatened to undo the rule, and the collections industry is likely to challenge it in court.  

The new rule is one of several initiatives from government agencies to bolster medical debt forgiveness programs, improve access to reduced-cost care for those who need it, and crack down on predatory debt collection practices.

Some states and localities have also taken steps to eliminate medical debt for their constituents. The White House said those jurisdictions are “on track” to eliminate about $15 billion in medical debt for nearly 6 million Americans. Federal funds have so far eliminated about $1 billion worth of medical debt.