Why 22.8 Million Americans Might Have Just Gotten a Big Credit Score Boost

There are different factors that go into calculating a credit score. These include length of credit history, new credit accounts, and credit utilization (or the amount of revolving credit being used at once). But the factor that carries more weight than any other when arriving at a credit score is payment history, which speaks to how timely consumers are with bills.

Not paying bills, or paying them late, has the potential to cause significant credit score damage. And a lower credit score could make it difficult to qualify for a loan or credit card. 

But new data from the Consumer Financial Protection Bureau (CFPB) reveals that a recent change to credit reporting may be benefiting consumers big time from a credit score perspective. And if the change works to your advantage, you might see that your score is higher than it was in the past.

When medical debt no longer gets reported

The practice of reporting medical debt collections for sums under $500 came to an end in April this year. The CFPB estimated that 22.8 consumers had at least one instance of medical collections removed from their credit reports since then, while 15.6 million consumers had all medical collections removed. And that's a very good thing.

The CFPB also found that consumers get a 25-point increase in their credit scores, on average, during the first quarter after their last medical collection is removed from their credit report. That increase climbs to 32 points for people with medical collections that amount to more than $500.

But it's not just an uptick in credit scores that tends to result after medical debt is removed from credit reports. The CFPB also found that credit availability increases for consumers 18 months after their last medical collection is wiped from their credit reports. This, in turn, gives borrowers more opportunities to qualify for new credit cards and personal loans.

A very positive change

It's unfortunate that in the context of a credit score, even a single late payment of a small amount could cause a world of damage. Now that smaller medical debts won't stay on consumer credit reports, borrowers may have an easier time maintaining higher scores. 

Not only are medical debts of under $500 no longer allowed on credit reports, but completely paid-off medical debts in higher amounts must be removed as well. If you have a smaller outstanding medical debt that's gone to collections, or if you recently paid off a medical bill that's been lingering, make sure to check your credit report to see if those items have been removed from your record. If not, contact the credit bureau behind your report and ask them to make that change.

At the same time, do your best to keep up with future medical bills, since debts above the $500 threshold have the potential to be reportable. If you can't pay off a medical bill in full, ask your provider to get on a payment plan. You generally will not be reported as delinquent if you're sticking to an installment agreement.