Biden Administration Proposes To Ban Medical Debt From Credit Score Calculations

There’s nothing that feels quite as unjust as being punished for something you couldn’t help. But medical debt — often the result of a simple accident or illness that racks up sky-high hospital bills — is a reality for millions of Americans.

For years, that debt was treated no differently by the credit bureaus than maxed-out credit card or luxury auto loan, and could similarly impact patients’ ability to take out future lines of credit, including potentially financially gainful ones like mortgages or small business loans.

But on June 11, the Consumer Financial Protection Bureau (CFPB), under the guidance of the Biden administration, proposed a rule that would ban medical bills from appearing on most credit reports.

Along with keeping medical debt out of credit score calculations, "this rule would stop debt collectors from using the credit report as a cudgel to coerce consumers into paying bills they may not even owe," reads the CFPB press release, "and make sure the credit-reporting system doesn’t unjustly punish people for getting sick."

CFPB rule would improve credit scores an average of 20 points

Medical debt isn’t a new problem. The CFPB itself states that it noticed the overly penalizing effects of medical debt on consumer credit scores "a decade ago," and the American Bankruptcy Institute lists health care costs as the number-one cause of personal insolvency in the U.S.

But the rule’s release is a timely one. According to reporting by The Washington Post, the proposal will be up for public comment until Aug. 12, at which point a final draft will be written. Of course, its eventual confirmation would depend on the results of the presidential election in November. Officials of the current Administration have said the rule will likely be finalized in 2025 — providing that Biden is re-elected.

In 2022, in response to a CFPB report finding that Americans owed some $88 billion in medical debt, Equifax, Experian and TransUnion announced that they would remove paid medical debts, those less than a year old and those under $500 from credit reports and score calculations.

However, even with these changes, per the CFPB’s most recent findings, 15 million Americans owe $49 billion in medical expenses. Per the CFPB, medical debt disproportionately affects low-income households and those who live in the South. Additionally, per KFF data, Black adults are almost twice as likely as white ones to have medical debt.

The new rule, if implemented, would work to raise the credit scores of the 15 million affected Americans by an average of 20 points, the CFPB estimates. And underwriters wouldn’t see medical debts listed when pulling patients’ credit for auto, home or business loans — all of which can be financial boons in the long run.

"No one should be denied access to opportunity," said Vice President Harris on a call with reporters, "simply because they have experienced a medical emergency."

If you’re in medical debt, negotiate

Patients don’t necessarily have to go into debt to feel the effect of healthcare costs on their finances. According to one ValuePenguin survey, 31% of Americans who pay for prescription medications call them a financial strain. Plus, health insurance costs an average of $584 per month in the U.S. — which is 4% higher than last year.

Along with credit card debt, those who take on overwhelming medical expenses may turn to unsecured personal loans to help pay them down — whose interest rates can still be high enough to chip away at patients’ potential savings.

Fortunately, those who negotiate their medical bills are overwhelmingly successful: According to one LendingTree survey, 90% of those who tried to talk their providers down made at least some headway.

If you’ve already taken on medical debt, however, debt consolidation may help — as can shopping around for the most affordable health insurance package possible.