Medical Debt Can Stay on Credit Reports, Judge Rules
Millions of Americans have crushing medical debt, which can damage FICO scores. To help with this, the Consumer Financial Protection Bureau (CFPB) finalized a rule on Jan. 7, 2025, that would have removed a whopping $49 billion in medical bills from the credit reports of around 15 million Americans.
That medical debt credit report rule, however, has been reversed by a federal judge.
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What Did the Medical Debt Credit Report Rule Reversal Undo?
The CFPB’s medical debt credit report rule was designed to address long-standing issues with medical debt on credit reports. The key points were:
- Ban medical debts from credit reports. Credit reporting agencies like Equifax, Experian and TransUnion were going to be banned from including medical bills on the credit reports they send to lenders.
- Prohibit lenders from using medical debt information. This rule would have prohibited lenders from using medical debt information against borrowers applying for loans.
- Eliminate coercion by debt collectors. Debt collectors wouldn’t have been allowed to use the credit reporting system to coerce medical bill payments, regardless of their accuracy.
Why The Rule Got Tossed
Crippling medical debt prevents thousands of Americans from getting approved for mortgages, car loans and even credit cards. The CFPB found medical debt often isn’t a good indicator of borrowers’ ability to repay other types of debts. So for that reason, it believed medical debts shouldn’t be allowed to tarnish credit reports.
The CFPB estimated the rule could have led to the approval of around 22,000 additional affordable mortgages each year. Plus, Americans with medical debt that was negatively affecting their FICO score could have seen an average boost of 20 points.
However, the judge said regardless of the reason for the change, the CFPB didn’t have the authority to make it because of the Fair Credit Reporting Act.
How Does Unpaid Medical Debt Affect Credit?
If you get a medical bill over $500, don’t pay it and it ends up in collections, it will show up on your credit report and stain it for up to seven years. This damages your credit score and makes it much harder to get approved for affordable loans or credit cards.
Even worse, medical debt in credit reports is often inaccurate or inflated. The CFPB says around 15% of debt collection complaints they received in 2021 were related to medical debt collection. This means if you didn’t have the habit of checking your credit report for mistakes, you might have unknowingly carried medical debt that you didn’t even owe.
Other Consequences to Not Paying Medical Bills
The medical debt credit report rule was supposed to take at least one negative consequence away from accumulating medical debt. But now that the rule is out, in addition to hurting your credit score, there’s a possibility of:
- Debt collectors pursuing you. If you owe on medical bills, the provider can sell your debt to debt collectors, which means debt collectors could contact you and even take legal action to recover unpaid bills. Most health providers will send your bill to a medical collection agency if it goes unpaid for over 60, 90 or 120 days.
- Legal consequences. Though hospitals and medical providers are more likely to send your bill to a collection agency than sue you, it could still happen. And when you have a court judgment against you, it can result in wage garnishment or liens on your property in some states.
- Interruptions in care. If you’ve racked up a significant amount of medical debt, some hospitals or health care providers may stop providing you non-emergency services.
What Can Consumers Do?
The rule was a step in the right direction. However, even that would not have been a cure-all for the medical debt crisis and expensive health care in America. Here’s what you can do to protect yourself and your finances:
- Check your medical bills. Always review your bills for accuracy. If something looks off, don’t hesitate to contact your provider or insurer to dispute it.
- Negotiate payment plans. If you’re struggling to afford a medical bill, talk to your hospital or medical care provider to see if you could work out a payment plan. Nonprofit hospitals are required by law to offer financial assistance programs to patients. State or local social services may also offer some financial help.
- Know your rights. Debt collectors must follow the Fair Debt Collection Practices Act (FDCPA). This means they can only contact you about valid debts you owe. You also have the right to verify that you indeed owe the debt and the amount is correct. Check out the CFPB’s website to learn more about your debt collection rights.
- Continue to monitor your credit reports. Make a habit of keeping an eye on your credit reports for potential errors. You can get a free weekly report at annualcreditreport.com.
Medical Debt Is Still an Issue in America
Medical debt is the single largest source of debt in collections. It disproportionately affects people with lower incomes and those without insurance, creating a cycle of financial hardship. According to a KFF poll, 4 in 10 adults have debt due to unpaid medical or dental bills. And people with medical debt often cut spending on food and other household items to pay for these bills.
Jamela Adam is a personal finance writer covering topics such as savings, investing, mortgages, student loans and more. Her work has appeared in Forbes Advisor, Chime, U.S. News & World Report, RateGenius and GOBankingRates, among other publications. Freelance editor Mackenzie Raetz contributed to this report.
