Medical Debt Under $500 Will Be Removed From Credit Reports
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Here's your Money Briefing for Thursday, February 9th. I'm J.R. Whelan for The Wall Street Journal. Millions of Americans are about to see their credit profile get a cleaner bill of health. Medical debt under $500 is going to be lifted from their credit reports.
Debt is often thought of as being this frivolous thing. You overspend on things you don't need. But medical debt is the result of something that's not your fault.
So when are you likely to see that change to your credit report? And what could that mean for your credit score? We'll talk to NerdWallet personal finance expert Sarah Rathner about that after the break.
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When will medical debts under $500 be removed from credit reports?
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Check your credit report. More than 40 million Americans will have medical debt of less than $500 lifted from their credit portfolio. That may not sound like a lot, but it could mean a significant boost to your personal finances. Let's find out more from Sarah Rathner, a personal finance expert with NerdWallet. Hey, Sarah, thanks so much for being with us. Thank you for having me. So, Sarah, we've been hearing about changes to how medical debt shows up in credit reports for several months now. Catch us up on how this has been rolled out.
The Biden administration has made some changes about how medical debt is reported on credit reports and to what extent medical debt is reported. So one big change we saw last year was a doubling of the length of time before a debt that had gone to collections would show up on your report. So it used to be six months, now it's 12 months, giving people more time to negotiate bills with healthcare providers and insurance companies. And then a change we're going to see coming up There's a plan to remove medical debt of up to $500 from people's credit reports entirely by the middle of this year. And it's already February, so that means within just a few months, people are going to begin noticing changes to their credit report accordingly.
How significant is this that it's medical debt of $500 or less that's being wiped away?
This could potentially be quite significant. Obviously, your credit score is made up of a combination of lots of different factors. And if you have other debts or other late or missed payments, those are also going to negatively affect your credit score. If this is the only mark that's really hurting you, you might notice an improvement in your credit score over time. And that I think is especially significant because debt is often thought of as being this frivolous thing. You overspend on things you don't need. But medical debt is the result of something that's not your fault. It's an emergency situation, an illness or an injury. that you need to take care of and unfortunately can be quite expensive to resolve.
And so this could be very helpful for people who have these unpaid bills, they're struggling to pay them off, or there's an error on the bill and they're renegotiating them and then they're not going to be penalized in terms of their credit score just because they're going through that renegotiation process.
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