January 15, 2025
On January 7, 2025, the Consumer Financial Protection Bureau (CFPB) finalized a rule prohibiting the inclusion of medical debts on credit reports used by lenders. This action is set to remove approximately $49 billion in medical bills from the credit reports of about 15 million Americans. The rule also bans lenders from using medical information in their lending decisions.
How could this Impact Individual FICO Scores?
This change is expected to raise credit scores by an average of 20 points for those affected and could lead to the approval of approximately 22,000 additional affordable mortgages annually.
What is Behind the Change?
The CFPB’s research indicates that medical debts provide little predictive value regarding a borrower’s ability to repay other debts. Additionally, consumers often face inaccurate billing or are asked to pay amounts that should have been covered by insurance or financial assistance programs. By eliminating medical debts from credit reports, the CFPB aims to prevent debt collectors from leveraging the credit reporting system to coerce payments for potentially erroneous bills.
When will the New Rule take Effect?
The rule will take effect 60 days after its publication in the Federal Register. It’s important to note that while medical debts will no longer appear on credit reports, individuals are still responsible for paying any outstanding medical bills they owe. This initiative is part of broader efforts to protect consumers from the financial burdens associated with medical debt and to enhance the accuracy and fairness of credit reporting.
Source: Consumer Financial Protection Bureau (consumerfinance.gov)
**Directors Mortgage is not a credit repair or credit counseling company.