Medical Debt Will No Longer Appear on Many Americans' Credit Reports
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Here's your Money Briefing for Monday, March 21st. I'm J.R. Whelan for The Wall Street Journal. Medical debt can be a huge burden for many Americans, and that can overwhelm even people who otherwise are financially responsible. It can also be a dark blemish on their credit report. Well, now the credit reporting firms plan to ease some of that burden by stripping billions of dollars in medical debt from consumers' credit reports.
It's almost like a fresh start for these people because it's like, OK, there is a way if they're able to pay the bill to actually get this account removed from their credit report. So that could potentially be significant relief.
But not all medical debt is coming off of credit reports. Coming up, we'll ask WSJ banking reporter Anna Maria Andriotis to go through the details for us. That's after the break.
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The Wall Street Journal reports exclusively that the big three credit reporting firms plan to remove billions of dollars in medical debt from consumers' credit reports. So who will be affected, and what could it mean for their credit scores? WSJ Banking reporter Anna Maria Andriotis joins us with the details. Hey, Anna Maria, thanks for being with us.
Great to be speaking with you.
So, Anna Maria, you broke the story for us, and I want to get into all these changes coming in a moment. But just to step back for a second, what is the current system, and what has having medical debt meant for people's credit scores?
So medical debt has certainly taken a heavy toll on people's credit reports, credit scores, and their ability to borrow. Generally, when we speak about medical debt, what we mean are bills, medical bills that people receive from hospitals, doctors, other medical providers that they cannot pay. In some cases, they're not even aware of the bills because of various glitches. And after some time passes, those medical providers send those unpaid bills to collections firms. And when the collection firms receive these bills, what they do is they report those bills as being in collections to the credit reporting firms. It is usually at this point, in most cases, where medical debt gets added onto credit reports.
For the consumers, what that means is a negative mark, a pretty significant one, on their credit report that lenders are able to see when those people apply for credit cards, auto loans, mortgages, other types of financing. It can be grounds for lenders to decide not to approve people for those loans or to approve them, but at a higher interest rate than they otherwise would. These negative marks can also impact credit scores, lowering them. But when there's an unexpected medical emergency or illness that results in many medical bills, there's been a question that's been out there for some time debated within the credit reporting industry, as well as point brought up by consumer advocates and even regulators of how indicative is unpaid medical debt, these medical bills, how indicative are they of people's ability to pay their debts, like when they're applying for a true loan.
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