What Is The New Credit Bureau Policy on Medical Collections?

September 4, 2022

What is a medical collection?

When you go to the doctor and receive services you incur medical debt. That debt is either paid by your insurance policy, out of your pocket, or a combination of both. If you are unable or unwilling to pay your medical debt, the doctor’s office or medical service provider will generally outsource the collection efforts to a collection agency.

Collection agencies commonly report or “furnish” their accounts to the three credit reporting agencies. So, if you have defaulted medical debt there’s a good chance it will eventually end up on your credit reports in the form of a medical collection.

What is the new policy?

As of July 2022 paid or settled medical collections will be removed from consumer credit reports. This new policy augments the existing policy, which is to remove medical collections that have been paid (or are being paid) by an insurance policy.

Medical collections under $500 will no longer be included on credit reports. This means new collections for less than $500 will never be reported. And, collections that are on your credit reports that are under $500 will be removed.

In addition, debt collectors are going to have to wait 12 months before they can furnish medical collections to the credit reporting agencies. This augments the current 6-month waiting period. The theory here is that it gives the insurance claim/payment process an even longer amount of time to work and prevents a collection from ever being reported.

According to the credit bureaus, their new policy will result in some 70% of medical collections being removed from credit reports.

Medical collections have long been on the chopping block

Getting into most debt is a voluntary act. Mortgage loans, auto loans, student loans, and credit card debt are all debts we incur with our eyes wide open and as a matter of choice. You can’t say the same about medical debt, generally. In fact, unless it’s for elective services like cosmetic surgery all other medical debt is involuntary. Nobody chooses to get sick, get into a car accident, or blow out a knee playing basketball. This fact hasn’t fallen on deaf ears.

Accordingly, history has been chipping away at medical debts long before the credit bureaus’ March 2022 announcement. In fact, FICO’s scores have long discounted (not ignored, discounted) the impact of medical collections. And, in the newer FICO score generations collections with a zero balance, including medical collections, are entirely ignored.

Years before the March 2022 announcement the credit bureaus had NCAP or the National Consumer Assistance Plan. Among other things, NCAP prevented the reporting of medical debts for 180 days to allow for insurance payment to be applied to debts. And, medical debts that were paid by an insurance policy were removed.

The credit bureaus also have a credit reporting standard whereby collections that are discharged in bankruptcy are also removed. When you add all of this together you start to question how good it is to be in the medical collection business.

What if you have medical debt?

You’ll never find an article I’ve written where I advocate that you not pay what you owe. If you borrowed a dollar then you should pay back the dollar. My stance hasn’t changed, you should pay what you owe.

If you have medical debt you should pay it, if you can. I understand some medical debts are so large that you will never be able to pay them. In those instances, you should try to settle the debt (pay less than you owe), or explore your bankruptcy options. But, you can’t ignore them because even under the new extremely consumer-friendly guidelines they will eventually make their way to your credit reports.

If you aren’t sure if you have medical debts on your credit reports you can find out by pulling all of your reports. You can do this for free through the end of 2022 at www.annualcreditreport.com. If you do have medical collections with a zero balance, you won’t see it much longer.