SIOUX FALLS, SD (KELO) – Beginning in July of this year, the country’s three largest credit bureaus will remove medical debt that has been paid off from their credit reports and eliminate all medical collections less than a year old.
“Medical debt is a very, very common thing that people come in with,” said Dawson Muska, financial counseling coordinator for Lutheran social services.
Medical debt is one of the top reasons people struggle with their credit scores, Muska says.
“You might be managing your finances well and suddenly you get sick or you have a car accident and depending on your insurance level you could owe hundreds of thousands of dollars afterwards,” Muska said.
This debt often goes to collection agencies, and even after it’s paid off, it can affect your credit score for years. Equifax, Experian and TransUnion, the country’s top three credit bureaus, say this new change will eliminate nearly 70 percent of all medical debt currently listed on credit reports.
“The less negative information you have on your credit report, the higher your score will be at the end of the day,” Muska said.
Which makes it easier to qualify for things like a car loan or mortgage; Believers believe that is the main goal of this nationwide change.
“They do a lot of things to help people afford more housing,” said Fairway independent mortgage broker Dave Kelly.
Kelly says this change could help more families struggling with their credit scores finally qualify for a mortgage, but it requires more personal responsibility for those still dealing with large medical bills.
“At the end of the day, debt is debt. People are still going to have to pay that debt, it just doesn’t show up on your credit report,” Muska said. “So if you just want to approve a loan, there’s not that accountability there, which I think could be a challenge.”
“We talk to clients about it all the time, just because I can approve you doesn’t mean you can afford it,” Kelly said. “As part of your overall debt, you should look at what other bills I have?”
The credit report changes will automatically take effect on July 1st. Credit experts expect even more changes in the credit reporting industry soon, aimed at helping more families find affordable housing.