Right now, any medical debt that gets sent to a collections agency can remain on your credit report for up to seven years, even after it’s been paid off. This ding on your credit score can be the difference between qualifying for a loan or being denied. That’s why the House Committee on Financial Services is looking at a bill that would erase some paid medical debts from folks’ credit reports.
The Medical Debt Responsibility Act, introduced earlier this summer by Congressman Heath Shuler of North Carolina, would require the three major credit bureaus — Equifax, TransUnion and Experian — to remove records of medical debt of up to $2,500 within 45 days of being paid off.
“Small amounts of medical debt cause huge credit problems for millions of responsible, hard-working Americans who have suffered an illness or accident,” said Shuler when the legislation was first introduced. “By keeping cleared medical debt off of credit reports, this bill will allow more Americans to have the credit score they deserve and need to buy homes and stimulate economic growth in their communities.”
Says Congresswoman Nydia Velazquez of NY, a co-sponsor of the bill, “Medical debt is not a reliable indicator of credit risk, yet nearly a quarter of Americans have seen their credit scores plummet because of small, routine medical bills.”
A rep for the American Bankers Association argues that lenders have a right to know about an applicant’s entire payment history, saying that while the debt the bureaus would be required to be remove “is not major medical debt, but still, there are exceptions that seem to undermine the purpose of credit reports even if well-intended.”
The credit bureaus worry that, by deleting this information from a credit report, borrowers might qualify for loans they are not prepared to pay. “Expunging predictive information is not in the best interest of consumers or credit granters — both of which benefit when credit reports and scores are as accurate and predictive as possible,” reads a statement from VantageScore, a credit-scoring company developed by Experian, TransUnion and Equifax.
Where do you come down on this issue — Is seven years too long for a paid-off doctor’s bill to remain on a credit report? Is erasing the debt record after 45 days too soon?