This Big Change Is Coming to Credit Reports -- Check Yours Soon

It's actually a positive one.

Medical debt is a major problem in the U.S. A recent survey by the Kaiser Family Foundation found that roughly 23 million Americans owe money related to healthcare costs. And as of 2019, Americans' total medical debt came to at least $195 billion.

Unfortunately, even Americans with decent health insurance can easily fall victim to medical debt. And falling behind on that debt could have negative consequences.

When you fall behind on a financial obligation, it has the potential to cause your credit score to drop. Just as making a late payment on a credit card or loan could cause a hit to your score and serve as a black mark on your credit report, a late payment for a medical bill could have a similar impact.

But now, new changes to credit reporting are making it easier for consumers to move past medical debt or avoid having it hurt their credit scores altogether. And some of those changes are ones you'll want to look out for on your credit report soon.

Consumers get a nice reprieve

Delinquent debts can remain on your credit report even once they're settled. But soon, the three major credit bureaus -- Equifax, Experian, and TransUnion -- will no longer include medical debt on a credit report once it's been paid off. Previously, it was possible for medical debt to remain on a credit report for up to seven years.

Not only that, but under a set of new rules, consumers now get a full 12 months before unpaid medical debt can show up on a credit report once it's handed over to a collection agency. Consumers used to only get six months of leeway in that regard.

These changes were set to take effect in early July, so if you have medical debt that's been settled, it pays to review your credit report now to make sure it reflects the new rules. The good news is that you're entitled to a free copy of your credit report once a year from each major reporting bureau, so if you haven't accessed yours recently, you may not have to spend a dime to do so.

Another big change is coming down the pike

Wiping settled medical debt off of credit reports and extending the window to start listing delinquent debts aren't the only changes consumers can anticipate. Beginning in 2023, the three major credit bureaus will also stop reporting delinquent medical debts that are under $500. That could spare a host of consumers a world of financial upheaval.

Delinquencies on a credit report can lead to immediate credit score damage, making it harder for consumers to borrow affordably when they need to. And so it will be interesting to see to what extent credit scores improve across the board in light of this change.

As of June 2021, about 43 million credit reports listed medical debts in collection. Making it easier for consumers to avoid credit score damage from medical debt is super important given how unavoidable debt of this nature can be.