A significant number of U.S. consumers will have their medical collection debt dropped from their credit report, the nation's biggest credit reporting bureaus announced Friday.
Equifax, TransUnion and Experian said in a joint statement they would remove nearly 70 percent of the debt after monthslong industry research showed roughly two-thirds of this type of debt is the result of either one-time or short-term medical expenses stemming from an "acute medical need," a news release said.
"After two years of the Covid-19 pandemic and a detailed review of the prevalence of medical collection debt on credit reports, the NCRAs are making changes to help people to focus on their personal wellbeing and recovery," the agencies said, referring to themselves with an abbreviation for "nationwide credit reporting agencies."
Beginning July 1, paid medical debt will no longer be included on consumer credit reports. The credit bureaus also announced that in the first half of 2023, medical debts of less than $500 will not be added to consumer credit reports.
Additionally, the time period before unpaid medical collection debt would appear on a credit report will increase from six months to a year. This change aims to allow consumers more time to work with their insurance and medical providers to pay the debt.
A February report by the Consumer Financial Protection Bureau found that medical debt collections were "less predictive of future payment problems than other debt collections," such as car loans and mortgages.
The report also said Black, Hispanic and low-income individuals are more likely to have medical debt. Older people and veterans are also heavily impacted, according to the report.
The CFPB wrote that because of this, these groups "may be more heavily impacted by outdated credit models," therefore affecting their chances of securing housing, car loans and insurance.
Ted Rossman, a senior industry analyst at Bankrate, told CNBC that removing paid medical debt from credit reports could help consumers increase their credit scores, especially for older FICO models that are used for obtaining federally backed mortgages.
"There seems to be an acknowledgment that medical care is essential and should not be penalized by the credit bureaus," Rossman said.