Fair Credit Reporting Act News
Medical debt mistakes affect credit reports and how customers could guard their credit from these mistakes
Wednesday, October 9, 2024 - For millions of Americans, medical debt is a major cause of financial stress; mistakes in how this debt is shown on credit reports can aggravate the problem. Incorrectly reported medical debt can damage credit scores, which makes it more difficult for people to get credit cards, loans, and even safe housing. Protecting financial health depends on knowing how medical debt mistakes happen and how people can fix them. Consumers are protected, however, under the Fair Credit Reporting Act (FCRA), which forces lenders and credit bureaus to immediately correct credit reporting mistakes.
Medical debt mistakes often result from insurance conflicts, billing problems, or slow payment processing. For example, even if the insurance company covers some or all of the payment, a hospital or other healthcare facility could forward an unpaid bill to collections. Sometimes patients are not told of a debt until it is turned over to a collection agency. Even if it was sent in error, once the debt is recorded to credit bureaus it can harm a consumer's credit score for years. One typical problem with medical debt is the uncertainty about when a bill becomes delinquent. Medical professionals can wait months to settle payment conflicts with insurance companies, and during this period unpaid bills may be forwarded to collectors too soon. Should this occur, the debt could show up on the consumer's credit record, reducing their credit score and so affecting their eligibility for future credit or loans. Having the debt taken off the credit report can prove difficult even once the insurance argument is settled. The erroneous reporting of paid or settled medical debts is still another major issue. Credit reporting companies adopted a rule in 2017 requiring medical debt removal from credit records upon insurance payment. This regulation is not always observed, though, and customers may discover that a paid-off medical obligation still shows up on their credit report, therefore compromising their score. Furthermore, some medical debts may be re-aged wrongly, thereby altering the date of the debt to give it a more contemporary appearance and so impact the credit report.
Medical debt mistakes have a broad effect on credit records. Many lenders still employ older credit scoring models that evaluate medical debt similarly to credit card or loan debt, even if more recent models, such as FICO 9 and VantageScore 4.0, assess medical debt less strongly than other types of debt. This means that even a minor medical debt mistake can seriously lower a consumer's credit score, so restricting their access to financial products such as mortgages or car loans and increasing their interest rates. Consumers can guard themselves from the effects of medical debt mistakes by following a few guidelines. To make sure no erroneous medical debts show up on their credit reports from the three main credit bureaus--Equifax, Experian, and TransUnion--they should first routinely review them. Should an error be discovered, it is advisable to challenge the inaccuracy with the credit bureau as well as the collection agency or medical provider liable for the debt. Credit
