Tens of millions of Americans have seen their creditworthiness plummet in recent years due to unpaid medical bills. Staggering medical bills related to the pandemic have added to the problem.

About one in five adults received a medical bill they couldn’t pay in 2017, according to the latest U.S. Census Bureau data on the burden of medical debt.

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If those bills go to collection—as they often do—that information winds up in the patient’s credit file, which can reduce their access to credit and make it harder to rent an apartment, buy a home, or even get a job.

Medical debt is often “an unexpected, unwanted, and financially devastating expense,” according to a report issued in March by the Consumer Financial Protection Bureau (CFPB). Key findings from CFPB’s report:

  • As of June 2021, Americans had $88 billion in medical debt reported on their consumer credit records.
  • Medical bills represented more than half (58 percent) of the debt in collection reported to credit bureaus in the second quarter of 2021.
  • Medical debt has been linked to “adverse physical and mental health outcomes.” Four in 10 Americans say they are “more afraid of medical debt than of serious illness.”
  • Blacks and Hispanics, as well as low-income and younger adults of all races and ethnicities, have higher rates of medical debt than the general population. Older adults and veterans are also heavily impacted. (A report by the National Consumer Law Center examined the disproportional effect of medical debt on Black households.)
  • Medical collections are “less predictive of future payment problems” than other obligations that go unpaid, such as credit cards or mortgage payments. Unlike other debt, medical bills can be unpredictable, and often vary greatly based on the patient and provider.

In its February report, the CFPB noted that current practices in medical debt collections and reporting “can cause significant harm” to people with medical debt. The agency, which regulates credit bureaus, said it planned to conduct additional research to determine “whether policies should be implemented to eliminate unpaid medical billing data on credit reports altogether.”

After the CFPB released its report, the three major credit bureaus (Equifax, Experian, and TransUnion) announced they would voluntarily change how they treat medical debt:

  • Unpaid medical debt will no longer be reported after it is repaid, so it can no longer drag down credit scores, as it has in the past.
  • Medical debt will not show up in credit files for 12 months, rather than the current six months.
  • By mid-2023, medical debt of less than $500 will not be included in Equifax, Experian, or TransUnion credit files.

In other words, as of this month, medical debt isn’t included in credit reports once it’s paid off.

“This is a big deal that will impact millions of Americans,” said Patricia Kelmar, director of health care campaigns at U.S. PIRG, a non-profit consumer advocacy group. “Before this, even after consumers paid off all their medical debt, it could live on as a ding or negative mark on their credit reports for up to seven years. That’s a long time to be suffering from bad credit when you’ve already paid off your bills.”

And, since medical debt won’t be reported for 12 months, patients now have more time to deal with medical providers and insurance companies when there are billing issues.

“The extended grace period doubles the amount of time to resolve insurance claims or make affordable repayment arrangements for out-of-pocket medical care expenses,” said Bruce McClary, a senior vice president at the non-profit National Foundation for Credit Counseling. “Start working with your medical billing office and insurance provider as soon as you receive the first statement, and try not to waste the benefit of extra time.”

If you’ve had medical debt that went to collection and has been paid off, get a copy of your credit reports from the three big credit bureaus to make sure that negative information has been removed from your files.

You do that by going to AnnualCreditReport.com or call 877-322-8228. By law, you have the right to one free copy of your file from each of the three credit bureaus every 12 months. Lately, Equifax, Experian, and TransUnion have been providing free reports once a week, if requested.

(Note: Various sites offer so-called “free” credit reports, but they often result in a fee. AnnualCreditReport.com was authorized by the federal government. You do not have to provide a credit card number to use this site, since the reports are free. You must provide your Social Security number, since that’s how the credit bureaus identify you, so be sure you do this from a secure device.)

Related: New Federal Rules Spell Out What Debt Collectors Can and Cannot Do

Medical Debt is Different

The pandemic put a spotlight on the unique characteristics of medical debt. Unlike credit card bills, people rarely choose to take on medical debt. CFPB researchers found that two-thirds of this debt is the result of a one-time or short-term medical expense arising from an acute medical need.

Medical billing and collections practices can be confusing and difficult to navigate, which means patients may not understand what they’re required to pay, even if they have the money to do so. In many cases, people find out that medical debt was sent to collection only after applying for credit.

“With other kinds of bills, you’re going to be aware that there’s a problem,” said Liz Weston, personal finance columnist for NerdWallet.com and author of Your Credit Score. “If you’ve stopped paying on a credit card, you probably know that. But with the way that medical billing works, these bills can bounce back and forth between the insurer and medical provider multiple times, and you have no idea where it is in the process.”

Weston told Checkbook it took a year-and-a-half for insurance to pay the bills for the birth of her daughter. Because she didn’t want it sent to collections, she called the hospital and the insurance company every month to see what was happening.

“Many people have other things to do with their life then try to keep track of these bills, so things fall through the cracks all the time,” Weston said. “This change in the way medical debt is reported should really help a lot of people avoid problems with their credit in the future.”

Help Is Available

If you find yourself with medical bills you cannot pay, talk to your provider (doctor, clinic, or hospital) to see if you can arrange a payment plan, rather than using a credit card.

“First try to negotiate a lower amount with the provider to see if you can get a discount,” U.S. PIRG’s Kelmar said. “If you pay the provider using a credit card they have been fully paid and therefore have less incentive to lower the bill or set up a payment plan.”

Also, when you use a credit card, it might not be as clear to credit bureaus that the outstanding balance is medical debt. Keeping any owed medical debt separate from regular credit card debt will help you when the reporting agencies decide whether to include it on your credit report, she said.

Nonprofit hospitals are required by law to offer financial assistance programs. Contact the health department in your state for more information.

If you are already burdened with past-due medical debt, reach out to a nonprofit credit counseling agency. Members of the National Foundation for Credit Counseling (NFCC) provide expert advice along with affordable repayment options.

If the prospect of ongoing medical care is likely to result in unmanageable debt, the Patient Advocate Foundation may be able to help. They offer direct services to patients with chronic, life-threatening, and debilitating diseases to help them access care and treatment recommended by their doctors.

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Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for NW Newsradio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.