In an important joint announcement this week, Equifax, Experian, and TransUnion credit bureaus outlined new changes coming to credit reporting related to medical collection debt. In addition to this announcement, changes in the federal student loan program as well as newer state regulations continue to impact landlords and renters alike.
- Beginning July 1st this year, paid medical debt will no longer be listed on credit reports which previously would have been included up to seven years.
- Unpaid medical debt will take 12 months to be included on a credit report up from the current 6 month grace period.
- Starting early 2023 new medical debt of less than $500 will not be included on credit reports.
- The Federal Student Loan Program is undergoing an overhaul which may impact credit reports.
- During the pandemic, some states changed their regulations on criteria for approving or denying a rental application based on credit scores and debt.
- Landlord tips on rental application selection criteria and what renters should know about making sure their credit reports are accurate.
Changes to Medical Debt on Credit Reporting
In unanimous support of consumers, the three credit bureaus are making changes in how medical debt will be reported on credit reports.
As of June last year, over 88 billion dollars in medical debt was posted on consumer credit reports. Changes to credit reporting will remove nearly 70% of those medical collection debt tradelines from consumer credit reports this summer.
Equifax (EFX), Experian (EXPGF), and TransUnion (TRU) have agreed to remove medical debt that’s been paid off from credit reports July 1, 2022.
Full press news available here: Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical Collection Debt Reporting
In the past, even if a medical debt was paid-in-full, they could continue to show up on credit reports for up to seven years. This will eliminate billions of dollars off consumer records when those paid-off charges stop appearing.
In addition to this large erasure of paid medical debt, they have also made changes to when new medical debt can be posted on a credit report. Beginning in July, unpaid medical collection debt won’t appear on a credit report for the first 12 months. Currently, medical debt has a 6 month grace period so these changes are extending that grace period an additional six months.
Plus, a major breakthrough is coming early 2023 in regards to the medical debt amount per item. Currently, outstanding debt of any amount can be submitted to the credit bureaus but in less than a year, outstanding medical debt of less than $500 will not be included on credit reporting. It is unclear at this time if that cap will apply to unpaid medical debt posted before 2023 or only to new medical debt.
More information on the medical debt burden in the US can be found here: Consumer Financial Protection Bureau | Medical Debt Burden In the United States (February 2022)
Federal Student Loan Program Overhaul Creates Credit Report Changes
Federal student loan repayments have been paused for much of the pandemic but are to resume on May 1st. Additionally, the Federal Student Loan program has been undergoing many changes such as consolidations.
It’s unclear if the credit reporting agencies will take a similar approach in removing paid or forgiven student loan debt. But starting last year and continuing now, the federal student loan program went through an overhaul that is impacting credit reports. Specifically, 10 million borrowers had their student loan account moved to a new service provider.
Secondly, 6.2 billion dollar federal student loan forgiveness is available to qualified parties which will impact borrowers who qualify. Qualifications include working full-time in public service or in a non-profit, enrolled in a repayment plan and made/make a certain amount of repayments in addition to other criteria like filling out appropriate forms and waivers.
These forgiveness and consolidation programs are limited to federal student loans; private student loans are excluded.
States Change Credit and Debt Criteria for Prospective Tenant Application Process
During the pandemic, states such as California and Oregon put provisions in place regarding rental debt in relation to application criteria. For example, Oregon Senate Bill 282 impacts how landlords screen applicants through January 2, 2028 where debts during a protected period of the pandemic can not be taken into consideration for rental denial.
These three areas of change related to medical collection debt, student loan forgiveness and state regulations on using debt and credit information in your application process are important to follow because they can impact both landlords and renters alike.
How Changes to Credit Reporting Impacts Landlords
Changes in credit reporting are important to follow for both landlords when it comes to using that criteria for approving or denying a prospective tenant. In some cases, you might be setting your selection criteria in opposition to current state regulations. Regulations on what landlords can use to determine eligibility in making rental application decisions is location specific so be sure to stay up-to-date with your state regulations.
For new landlords, this resource from the Federal Trade Commission could prove useful in understanding your compliance obligations | Using Consumer Reports: What Landlords Need to Know
Credit Changes Impact on Renters
The good news is that for medical bills you’ve paid off, you will notice starting in July that those will no longer be listed on your credit report. Secondly, for unpaid medical bills, you’ll get an additional 6 months grace period before they begin showing on your credit file. Lastly, next year you’ll see medical items under $500 not be included on the report in the first place.
If you are one of the 10 million borrowers of a federal student loan, you will likely see the old provider listed with a zero balance and the new provider listed with the loan amount on your credit report. When that occurs, sometimes a credit score will take a dip downwards and it might take a little time making payments to the new account for the credit report to reflect the positive account activity.
It’s important that you keep an eye on your credit report so there aren’t any surprises when you go to submit an application for a rental. If you do see something out of the ordinary, contact the credit bureau directly to dispute or discuss.