The Consumer Financial Protection Bureau (CFPB) has finalized a groundbreaking rule that will remove an estimated $49 billion in medical bills from the credit reports of 15 million Americans. This decision is a significant step toward improving financial stability for millions and preventing debt collectors from using credit reports to force payments on potentially inaccurate medical bills.
Key Takeaways from the CFPB Rule
- Medical Debt Will No Longer Appear on Credit Reports Used by Lenders
- The rule prohibits credit bureaus from including medical bills on consumer credit reports sent to lenders.
- This protects consumers from having their credit scores unfairly impacted by medical debt.
- Lenders Are Banned from Using Medical Information in Credit Decisions
- Medical bills have been found to have little predictive value in determining a borrower’s ability to repay other debts.
- Many consumers have been denied mortgages and other loans due to medical debt that should have been covered by insurance.
- Estimated Credit Score Boost for Millions
- The CFPB expects that removing medical debt could result in an average credit score increase of 20 points for affected individuals.
- This rule could lead to the approval of 22,000 additional affordable mortgages each year.
- Medical Debt on Credit Reports Has Been a Long-Standing Issue
- In 2022, the three major credit bureaus (Equifax, Experian, and TransUnion) voluntarily removed certain medical debts under $500 from reports.
- FICO and VantageScore have also adjusted their scoring models to reduce the impact of medical bills.
- This new rule takes it a step further by completely banning medical debt from lender-used reports.
What This Means for Consumers
- Improved Privacy Protections: Your medical history should not be a factor in your ability to secure a loan.
- No More Coercive Debt Collection: Debt collectors can no longer use credit reports to force payments for disputed medical bills.
- More Fair Credit Approvals: Consumers with past medical debt may now qualify for loans they were previously denied.
Limitations of This Rule
While this is a major win for consumer protection, it is important to note:
- Smaller Credit Reporting Agencies May Still Include Medical Debt: This rule applies only to major credit reports used by lenders, but some alternative credit reporting agencies may still report medical debt.
- Removing Medical Debt Does Not Equal Good Credit: While this rule removes a negative item, you still need to actively build and maintain good credit through positive payment history, low credit utilization, and responsible credit management.
How to Build Strong Credit After Medical Debt Removal
If your medical debt is being removed, take proactive steps to strengthen your credit:
- Open at Least Two Credit Cards: Keep balances low and make on-time payments.
- Consider a Credit Builder Loan: These loans help establish a history of positive payments.
- Keep Old Accounts Open: Length of credit history matters.
- Monitor Your Credit Reports: Ensure accurate reporting and track your progress with SmartCredit.
Final Thoughts
The CFPB’s new rule marks a major shift in consumer credit reporting, offering relief to millions struggling with medical debt. However, financial freedom doesn’t stop at debt removal—you must take control of your credit-building journey to fully benefit from this change.
If you need help rebuilding your credit, explore our recommended credit-building accounts and strategies to set yourself up for long-term success! 🚀
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