The three major credit reporting bureaus – TransUnion, Experian, and Equifax – have all agreed to stop including certain types of medical debt, including some medical loans, on credit reports after they’re paid off. But what does this mean for your credit score? Here’s what you need to know.
Your credit score is a numerical rating that reflects your creditworthiness and is used by lenders, government agencies, and even some employers to gauge how responsible you are with money.
Your score is typically calculated by using the following criteria:
In the U.S., a good credit score is essential for obtaining loans, mortgages, and other forms of credit. A high credit score means you’re a low-risk borrower, which could mean getting approved for a loan with a competitive interest rate even if you have low income or no collateral, saving you thousands over someone with a lower score.
Before this decision, any outstanding medical debt was shown on your credit report and could have a significant impact on your score. Medical debt is one of the toughest debts to get rid of in the U.S., as many end up in collections because it is a long-term commitment that can be nearly impossible to pay off. This can lead to a bad credit score that may be hard to improve.
Any medical loans or debt that were paid off stayed on credit reports for seven years, which meant any lender receiving your loan or credit application would get a glimpse into both your financial and, in a way, medical history.
While the decision by the three credit bureaus to remove paid-off medical debts from credit reports is a big step in the right direction, it’s essential to keep in mind that any unpaid debt, no matter how small, can still have a significant impact on your score. If you’re struggling to pay off medical debt, working with a financial counselor could be a great way to improve your overall credit health and get back on track.