How Should Medical Debt Be Reported Under the New Credit Reporting Guidelines?

Medical debt has long been a controversial topic in credit reporting, as unexpected medical expenses can create financial burdens for consumers. Recent changes in credit reporting guidelines have significantly altered how medical debt is reported, ensuring greater protections for consumers. To comply with the Fair Credit Reporting Act (FCRA) and updated industry standards, data furnishers must carefully follow new procedures when reporting medical-related debts.

Understanding the New Medical Debt Reporting Rules

In response to consumer concerns and evolving regulations, major credit bureaus (Experian, Equifax, and TransUnion) have implemented significant changes:

1. Paid Medical Debt Can No Longer Be Reported
   • As of July 2022, medical debts that were paid in full by the consumer or their insurance provider must be removed from credit reports.
2. Medical Debt Less Than $500 Will No Longer Be Reported
   • As of April 2023, unpaid medical collections with an original balance of less than $500 are no longer included on credit reports.
3. One-Year Grace Period for Unpaid Medical Debt
   • Previously, unpaid medical collections could be reported after 180 days.
   • Under the new rules, consumers now have one year (12 months) before unpaid medical debts can appear on their credit report, allowing more time for resolution with insurance or payment plans.

Steps for Reporting Medical Debt Under New Guidelines

1. Exclude Paid Medical Debt from Credit Reports
   • If a medical debt has been fully paid by the consumer or insurance, do not report it or remove it if already reported.
2. Only Report Unpaid Medical Collections Over $500
   • If the medical debt is less than $500, it must not be reported.
   • If the original medical debt was over $500, it may still be reported after the one-year waiting period.
3. Apply the Correct Date of First Delinquency (DOFD)
   • Medical debt collection accounts must be assigned a DOFD to determine when the seven-year reporting period begins.
   • Ensure that the DOFD reflects when the debt first became delinquent, not when it was transferred to collections.
4. Use Special Comment Codes for Insurance-Related Disputes
   • If a medical debt is being disputed due to pending insurance payments, use Special Comment Codes to indicate that the balance is under review.
   • Avoid reporting a medical debt as “unpaid” if the consumer is actively working with insurance to resolve the bill.
5. Notify Consumer Reporting Agencies (CRAs) of Debt Removals
   • If a medical collection was previously reported but now falls under the new exclusion rules, update the account as “deleted” and notify all relevant CRAs.

Compliance with the FCRA and New Regulations

To remain compliant with the FCRA and new credit reporting guidelines, medical debt reporting must be:

• Accurate – Ensure paid medical debt and balances under $500 are not reported.
• Complete – Reflect the correct DOFD and insurance payment statuses.
• Timely – Remove medical debt promptly when paid or when it falls below reporting thresholds.

Impact on the Consumer’s Credit Report

1. Credit Score Considerations
   • The removal of paid and small medical debts may improve consumer credit scores, especially for those who previously had medical collections on their reports.
   • The one-year grace period allows consumers more time to settle medical bills before credit damage occurs.
2. Transparency for Lenders
   • Lenders reviewing credit reports will no longer see small or resolved medical debts, leading to a more accurate representation of a consumer’s financial responsibility.

Conclusion

Medical debt reporting has changed significantly, offering greater protections for consumers. By following updated guidelines, removing paid medical debt, excluding small balances, correctly applying the DOFD, and ensuring timely updates to CRAs, data furnishers can help maintain a fair and transparent credit reporting system.