Medical debt will no longer be considered by lenders when approving loans, thanks to a new rule finalized by the Consumer Financial Protection Bureau. This rule is set to remove tens of billions of dollars worth of medical bills from the credit reports of about 15 million Americans.
Benefits of the Rule
The rule could potentially increase impacted Americans' credit scores by an average of 20 points. This move comes after Vice President Kamala Harris introduced the proposed rule change in June, 2024.
Key Features of the Rule
The finalized rule prohibits creditors from using medical information in lending decisions and prevents consumer reporting agencies from including medical debt data on credit reports and scores sent to lenders. However, lenders can still consider medical information for certain purposes like verifying forebearances and expenses.
Implementation and Impact
The new rule is estimated to eliminate $49 billion in medical bills from credit reports and is expected to lead to about 22,000 additional approved mortgages annually. The rule goes into effect 60 days after publication in the Federal Register.
Background and Research
The Consumer Financial Protection Bureau's decision is based on research showing that medical bills on credit reports do not accurately predict loan repayment. Medical bills have been a significant factor in denied mortgage applications, despite consumers' ability to repay. The changes by Equifax, Experian, and TransUnion in 2023 were influenced by similar research findings.
If you have medical debt on your credit report, you could see a significant improvement in your credit score once this rule takes effect.
