Medical Debt To Be Removed From Credit Reports in 2025: What You Need To Know

Medical debt and the problems they cause credit reports, have long gone hand-in-hand. Consumers behind on payments to healthcare providers, especially those whose bills have been sold to collection agencies, suffered dings to their credit scores.

Changes in recent years have lessened the impact of unpaid medical bills on credit scores, but nothing compares to what happened when the Consumer Financial Protection Bureau (CFPB) announced a decision to remove medical debt from credit reports.

The ruling could have a significant impact on credit scores and consumers access to mortgages, auto loans and small business loans.

Details About the New Policy

More than 15 million Americans can breathe easier following the announcement that medical debt has been erased from credit reports.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

Although announced in the final days of the Biden Administration, the rule will not be implemented until March of 2025, two months after Donald Trump’s inauguration as the incoming president.

How It Will Impact Consumers

Credit scores are key considerations for consumers applying for mortgages, car, personal, small business loans, or any type of credit. Lower credit scores and problematic credit reports, can result in difficult borrowing terms, or even outright denial for a loan.

In its report, however, CFPB claims medical debt is an unreliable predictor of a borrower’s ability to pay other debts. Moreover, the bureau says, consumers often report “receiving inaccurate bills or being asked to pay bills that should have been covered by insurance or financial assistance programs.”

Finalization of the rule means the CFPB will scrub $49 billion in medical debt from the credit reports of more than 15 million Americans. Credit scores for affected consumers will rise 20 points on average, leading, potentially, to an additional 22,000 mortgage approvals annually, according to the CFPB.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Vice President Kamala Harris said, announcing the new rule. “This will be life-changing for millions of families, making it easier for them to be approved for a car loan, a home loan, or a small-business loan.”

The bureau’s national ban follows several state legislatures — among them California, New York, New Jersey, Connecticut, Illinois, Minnesota, Rhode Island, Virginia, and Colorado — that took the lead in prohibiting medical debt from being included in residents’ credit reports or figured into their credit scores.

Wiping medical debt from credit reports and scores does not absolve the consumer’s obligation to pay. It does, however, neuter one of the debt collections industry’s most effective weapons. Accordingly, the new rule almost certainly will face court challenges.

Reaction from the Credit Reporting Industry

The Nationwide Credit Reporting Agencies — Equifax, Experian, and Transunion — have been reducing the impact of medical debt on credit reports for nearly two years.

The Big Three removed medical collection debt with an initial reported balance of less than $500 from U.S. consumer credit reports in April 2023. The change removed nearly 70% of collections accounts from credit files.

Additionally, the agencies erased paid medical collections debt from credit reports as of July 1, 2022. Previously, debts that went into collections, though paid, could weigh on a consumer’s credit history for seven years.

FICO and VantageScore, the nation’s top two credit-scoring companies, have shrunk the significance of medical bills in their scoring, according to the CFPB. VantageScore reports it eliminated medical debt as a scoring factor in January 2023.

Equifax is on the record opposing the rule, however, telling the CFPB in an Aug. 12, 2023 letter that the bureau’s rule “is flawed because it does not meet the requirements of rule making and is not permitted under the current statutory regime.”

The rule, said Equifax, is “arbitrary and capricious.”

ACA International, a lobbying group representing collection agencies, also opposed the rule, claiming it will harm its membership, healthcare providers, and consumers themselves. ACA forecasts “most providers will likely shift to requiring cash up-front,” resulting in ballooning credit card balances or more extreme borrowing activities, such as payday loans. ACA also warns more debtors will wind up in litigation.

The Consumer Data Industry Association, which represents credit reporting companies, also appears annoyed. In a statement, the association challenged the CFPB’s authority to issue such a rule, and said it is considering its options.

Political Challenges for the New Policy

Because it was issued by an administrative agency, the rule is on shakier ground than a bill passed by Congress and signed into law by a president. Accordingly, the rule may face pushback from the White House and on Capitol Hill.

President Trump has made it clear he intends to use his renewed executive powers to undo a substantial portion of his predecessor’s administrative orders and agency edicts. Early on, however, he was silent regarding the new rule.

With majorities in the House of Representatives and Senate, Republicans — who take a dim view of CFPB activities generally — may scrutinize the rule under the Congressional Review Act, an oversight tool that allows Congress to overturn final rules issued by federal agencies. Since the November election, GOP lawmakers have demanded the CFPB stop issuing new rules, period.

It’s possible, however, that the GOP’s thin majorities, or a White House interested in frying larger fish, would be looking for trouble.

“Though Team Trump is likely to try to freeze or reverse these actions, it is not guaranteed,” said TD Cowen Washington Research Group analyst Jaret Seiberg in a report. Seiberg doubts a “more populist” Trump 2.0 will prioritize undoing the CFPB’s work on behalf of consumers.

Steps You Can Take Now

Borrowers with medical debt weighing on their credit histories should not wait for Washington to sort things out. Now would be a good time to request a free credit report from each of the Big Three to examine the most up-to-date information they’re holding.

Keep in mind that reporting errors occur often, and that medical debt reporting is especially problematic. A 2024 study by Consumer Reports and WorkMoney showed that 44% of consumers had errors on their credit reports.

“Many consumers have medical debt on their credit reports that is inaccurate or under dispute because our medical billing and insurance reimbursement system is so complex and confusing,” said Chuck Bell, advocacy program director for Consumer Reports.

If you find inaccuracies, gather your evidence, follow the guidelines provided by each of the agencies’ websites … and prepare to be assertive. Just now, Experian is being sued by the CFPB for “unlawfully failing to properly investigate consumer disputes.” Director Chopra was blunt: “Experian conducted sham investigations.”

Consumers who know where they stand with the Big Three also will be in a better position to monitor their situations when — if — the bureau’s rule takes effect in March.