Medical debt has long been a major problem throughout the United States, and it continues to be a cause of financial stress for many American families. Around 40% of Americans owe debt collectors money because of unpaid medical bills, and these outstanding debts are damaging the credit scores of millions of Americans.

Medical debt is a big problem in the U.S., but there is a small measure of relief coming: Changes are being made to the way medical debt is reported on credit reports. When these changes go into effect on Sept. 15, millions of Americans who allegedly owe debt collectors for past healthcare services could see a boost to their credit scores. 

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How the rules for reporting medical debt are changing

Medical debt is different from most other kinds of consumer debt. Typically, those who are actually owed money -- like doctors and medical care facilities -- aren't the ones reporting delinquencies when bills aren't paid. Instead, healthcare providers quickly turn to collection agencies to try to recoup unpaid fees, and these collection agencies report debts to credit bureaus.  

There are a few big problems with this, including the fact that some consumers have delinquent medical debts reported that they don't actually owe. In fact, one recent study revealed close to two-thirds of all consumers who made complaints to federal regulators about medical debt collections did not actually owe what the collectors claimed they did. A review of more than 17,000 complaints revealed that, in more than 60% of cases, either the debts had been paid, the debts couldn't be confirmed, they'd been discharged in bankruptcy, or they'd never been owed by the consumer in the first place.  

Unfortunately, debt collectors for medical debt aren't always concerned with being fair to alleged debtors -- and credit reporting agencies weren't previously taking into account the special characteristics of medical debt. Under the old rules, a collector would report medical debt to a credit bureau, and a delinquent debt would immediately show up on a credit report -- even if the alleged debtor hadn't paid simply because of their ongoing efforts to work out with an insurer what is actually owed.

The good news: Beginning on Sept. 15, Equifax, Experian, and TransUnion -- the three major credit bureaus -- will change the rules for reporting medical debt. Under the new reforms, there will be a 180-day waiting period before unpaid medical debts are included on consumer credit reports. The reforms, which will be implemented nationwide, are the result of an agreement between the three agencies and state attorneys general to resolve allegations of unfair reporting practices. The waiting period has been put into place because it does take time -- often many months -- for consumers to resolve disputes with insurers over denied claims for services that often should be covered.

How the changes will help consumers

For more than 15 million Americans, medical debt is the only black mark on their credit report. Responsible consumers who have done everything right could still face dramatic and long-lasting damage to their credit as a result of something as simple as an insurance coverage dispute. Worse, even when problems are resolved and claims are paid, the delinquent debt isn't always removed from a consumer's credit report. 

The settlement with the credit bureaus provides additional relief for consumers whose medical debt issues are resolved when insurers pay outstanding bills. Under the new reforms, medical debts will be removed from credit reports after the bills are paid, so you won't continue to face higher interest rates or denials of loans due to allegedly delinquent medical debt you no longer owe.

In making this change, Equifax, Experian, and TransUnion now join FICO and VantageScore in adjusting their formulas to address the reality that owing money due to issues with medical bills does not typically make someone a credit risk. 

What should you do if you owe medical debt?

While the new changes to the credit scoring rules will give you time to resolve disputes with insurers and ensure that your paid debts are removed from your report, your credit could still be damaged by medical debt that you legitimately owe.

If you have a lot of outstanding medical bills, do your best to try to negotiate down the amounts you owe so you can pay the debt off and no longer have to worry about how it will impact your credit -- or your financial future. Patient advocates can help you get care providers to lower bills, but you can also work with collectors or billing departments directly to negotiate a prompt-pay discount or to try to work out a payment plan that is comfortable for you.