Should Paid-Off Medical Bills Damage Credit Scores?

There are a lot of people who do not get home mortgages or automobile financing because of events which are far beyond their control, especially medical bills. Now there is an effort on Capitol Hill that would limit the way health costs are listed on credit reports and thus how they impact credit scores.

“Illness or injury may strike any of us at any time, and often results in expensive treatment leaving millions of Americans to wrestle with medical debt,” says Rep. Maxine Waters (D-CA), Ranking Member of the House Financial Services Committees.

“People can choose when to shop and buy certain commercial goods but they cannot plan when they are going to be sick and need to seek medical care. If a consumer fully pays or settles a medical debt, the consumer should not continue to be arbitrarily penalized. The solution to this problem is simple and fair; information about a medical debt should be removed from a credit report once it is fully settled or paid. This information should not linger on a consumer’s credit report, like an albatross around their neck, making it more difficult for them to obtain credit for years to come.”

The Waters bill — the Medical Debt Responsibility Act of 2013 (H.R. 1767) — “would help improve consumers’ access to credit by removing fully settled or paid medical debt information from a credit report within 45 days. Under current law this type of information is generally retained on a credit report for seven years. The legislation recognizes that medical debt is unique and, therefore, does not impose an arbitrary dollar cap on the amount of medical debt that can be removed from a credit report.”

This is a very big deal because millions of people have credit which has been impacted by medical costs. According to a study by the Commonwealth Fund, “in 2010, two of five (40%) adults ages 19 to 64, or 73 million people, reported some type of medical bill problem, including: problems paying medical bills, being contacted by a collection agency about unpaid bills, having to change their way of life in order to pay their bills, or paying off medical debt.”

Medical Bills Impact Millions

Millions of people have been impacted by foreclosures and short sales, events which severely impact credit reports and often represent debts which will never be repaid. In contrast, the Waters bill is modest, it only helps people who have fully repaid their bills, it does not erase partial claims or unpaid debts.

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