Proposed Legislation to Reduce Impact of Medical Debt on Credit Reports

Medical debt in most cases is unavoidable. In a lot of cases so are huge knocks against otherwise spotless credit histories.  Dealing with the convoluted mess of juggling health insurance companies, doctors’ office billing departments, and hospitals it is easy to lose track of a bill or forget to make a payment. New legislation is now in the works to have collections, which originated as medical debt, to fall under its own category on credit reports to be scored differently than non-medical collections.

This new bill dubbed the Medical Debt Responsibility Act is currently under consideration in the House of Representatives and could potentially help trustworthy borrowers qualify for a home loan by lowering the impact of medical collections on their credit reports. Currently the bill is co-sponsored by Representative Donald Manzullo (R-Illinois.) Representative Heath Shuler (D-North Carolina), and Representative Ralph M. Hall (R-Texas).

The Medical Debt Responsibility Act calls for the three major credit bureaus (Experian, Equifax & TransUnion) to change the way medical debt affects a credit score. Currently the three bureaus report any and all medical collection information for the maximum allowed duration as with any other collection information; seven years, whether it remains unpaid or not. The Medical Debt Responsibility Act would require that all medical collection debt under $2,500 be omitted from credit records within 45 days of being paid or settled upon.

The terms under consideration have the possibility to significantly widen the pool of qualified homebuyers by allowing more people to purchase homes in the painfully floundering real estate market. Additionally, even more consumers would be able to qualify for lower interest rates on refinances as well as on other loan programs.

Fair Isaac, the agency in charge of credit reporting, has expressed concern over this new legislation as the “subjective tinkering” of credit scores will fail to provide lenders with a full understanding of a potential borrowers credit history. The bill is expected to face serious opposition in the Senate if passed by the House. Expect lobbyists from health insurance companies and mortgage banking firms to work heavily against this bill.

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