Credit report change: Under the new rule, certain bad debts are no longer allowed on credit reports

The new rule prohibits certain types of bad debt from being shown on credit reports.

Principle, announced by the Consumer Financial Protection Bureau, prohibits unpaid medical bills from appearing on credit reports used to determine whether a person qualifies for loans for things like homes and cars. According to the CFPB, this change will remove approximately $49 billion in medical debt from the credit reports of more than 15 million Americans.

Federal officials say Americans with medical debt could see their credit scores increase by an average of 20 points.

“The financial future of people who become ill should not be upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB final rule will close a special exemption that has allowed debt collectors to abuse the credit reporting system to force people to pay medical bills they may not even owe.”

More than 100 million Americans are struggling with outstanding medical bills, which is the largest source of debt in collections, the White House said, even though it is often the result of what the White House called “significant” billing errors. In 2020, 46 million people had medical debt on their credit report.

A CFPB study found that medical bills are poor indicators of a person’s ability to repay a loan. After a 2022 analysis estimated that medical bills account for $88 billion of reported debt on credit reports, the three largest reporting agencies – Equifax, Experian and TransUnion – announced they will no longer include paid medical debts or unpaid medical debts less than a year old or less than $500 in debt on your credit reports.

The final version of the regulations is scheduled to enter into force in March.