Americans' credit reports will be relieved of $49 billion in medical debt—here's what you need to know.

Over 20% of Americans have medical debt, but paying it back will now have a smaller impact on their financial health.

The CFPB has announced that medical bills will no longer be allowed to appear on consumers' credit reports or be used by lenders to make lending decisions. Additionally, the agency will remove $49 billion in medical debt from the credit reports of approximately 15 million Americans.

Rohit Chopra, CFPB Director, stated in a press release that people who become ill should not have their financial future disrupted.

Unpaid medical bills can negatively affect your ability to obtain a mortgage or credit, as well as lower your credit score. Additionally, consumers often receive inaccurate or uncovered bills, according to the CFPB.

As per a CFPB report, Americans had approximately $88 billion in medical debt on their credit reports in 2022. This debt was often accumulated in emergency situations or did not reflect the accurate amount owed by the patient. Furthermore, collection agencies would use these credit reports to pressure patients into paying their bills, regardless of whether they were actually responsible for them, the CFPB stated.

The latest guidelines have removed all medical debts from credit reports, including those under $500, as opposed to the previous guidelines that only took off some medical debts.

How your credit score may be affected

The CFPB is removing medical debts from credit reporting because it does not aid lenders in determining loan repayment. A 2014 CFPB study found that many consumers with unpaid medical bills on their credit reports had no other credit history red flags, such as delinquency on other loans.

Medical billing is complex, leading to many consumers with good financial histories being marked on their credit reports for unpaid bills due to confusion and delays in determining responsibility and amount owed.

The CFPB's decision to remove medical bills from credit reports will result in an average increase of 20 points in credit scores for consumers with those debts, according to the CFPB. This will also enable an estimated 22,000 more Americans to obtain affordable mortgages annually.

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