Medical Debts Can Hurt Even Long After They're Paid

When you suffer a serious illness or injury, the bills can start stacking up fast. Soon enough, you could find yourself saddled with a pile of medical debt, with your account turned over to a collections agency.

That medical debt can linger on your credit report long after the bills have been paid or settled. This situation can harm your credit score, making it tougher for you to get a mortgage, car, apartment, or even a job, and it could increase the interest rates you pay.

A study by the Consumer Financial Protection Bureau found that medical debt over-penalizes consumer credit scores. The study said credit-scoring models might underestimate the creditworthiness of consumers who owe medical debt in collections, and the scoring models might not be crediting consumers who repay medical debt that has gone to collections.

There's a domino effect here that can be devastating for people and their families dealing with a health crisis. That’s why Consumers Union, the policy and advocacy arm of Consumer Reports, has been pushing to clean up the system.

We want Congress to approve a long-pending bill called the Medical Debt Responsibility Act, which would require consumer-reporting agencies to remove any information related to fully paid or settled medical debt from your credit report within 45 days.

While we advocate for this bill on Capitol Hill, there is some potentially good news to report from one of the major players in the industry—Fair Isaac, the developer of the FICO credit score. The company recently announced it will not use any paid or settled debt in collections when calculating its new credit score model, and it will weigh unpaid medical debt in collections less in these scores than it has in the past. But some lenders and credit-reporting agencies might continue to use the previous FICO scoring model, which means that not all consumers would benefit from this change.

So, while this could be an encouraging development, the Consumers Union–backed medical-debt bill is still sorely needed today, because it protects everyone with paid or settled medical debt from being treated unfairly by potential creditors, insurers, and employers.

Join us in backing the Medical Debt Responsibility Act. You can take action by telling your lawmakers in the House and Senate to pass this bill. And help us keep the pressure on Congress by sharing your medical debt story.