January 08, 2025

Medical Debt No Longer to Appear on U.S. Credit Reports Under Biden Administration Rule

A groundbreaking change for millions of Americans burdened by medical debt was finalized Tuesday, as the Biden administration announced a new rule that will prevent medical debt from appearing on consumer credit reports. This significant shift comes as part of the administration's broader effort to alleviate financial stress and create a fairer credit system for U.S. consumers, many of whom have been disproportionately affected by rising healthcare costs.

For years, medical debt has been a major contributor to financial instability in the United States. According to a 2022 report from the Consumer Financial Protection Bureau (CFPB), approximately 43 million Americans have unpaid medical debt, collectively amounting to over $88 billion. Historically, unpaid medical bills have appeared on credit reports, dragging down consumers' credit scores and making it harder for them to secure loans, buy homes, or even qualify for basic rental agreements. This new rule is a pivotal step toward addressing the challenges faced by individuals who have struggled to keep up with medical expenses.

What the Rule Entails

Under the finalized rule, credit reporting agencies like Equifax, Experian, and TransUnion will no longer be permitted to include medical debt on consumer credit reports. This applies to both small balances and larger amounts, effectively wiping medical debt from the factors used to calculate credit scores. By removing this category of debt, the administration aims to ensure that a person's creditworthiness is not unfairly penalized due to unexpected or unavoidable healthcare costs.

The policy recognizes that medical debt is fundamentally different from other types of debt, such as credit card balances or auto loans. Medical expenses are often unplanned and tied to emergencies or essential care, leaving patients with little room for negotiation or financial preparation. Moreover, errors in medical billing are common, adding another layer of complexity to the issue.

The Impact on U.S. Consumers

For individuals saddled with medical debt, this rule could be life-changing. It means that unpaid medical bills will no longer prevent them from building strong credit profiles. Consumers who were previously denied credit opportunities due to medical debt will now have a fairer chance at securing loans or other financial products.

The rule also has the potential to reduce the stress and stigma associated with medical debt. Many individuals who faced financial hardship due to health-related expenses often felt trapped in a cycle of poor credit, making it difficult to recover financially. With medical debt removed from credit reports, these individuals may find it easier to regain financial stability and move forward.

Addressing Healthcare Costs

While this rule marks significant progress, critics argue it does not address the root problem: the high cost of healthcare in the United States. Medical debt is often the result of exorbitant hospital bills, lack of adequate insurance coverage, or surprise medical expenses that consumers were not prepared to pay. Advocates for healthcare reform stress that while eliminating medical debt from credit reports is helpful, it should be accompanied by efforts to lower healthcare costs and expand access to affordable insurance.

The Biden administration has acknowledged these concerns and has pledged to continue working on broader healthcare reforms. By tackling both the financial and systemic aspects of healthcare, the administration hopes to provide long-term relief for American families.

Moving Forward

This rule aligns with other recent changes in the treatment of medical debt. In 2022, the three major credit reporting agencies announced that they would remove medical debt under $500 from credit reports and give consumers more time to resolve outstanding medical bills before they are reported. The new rule finalized by the Biden administration takes this effort further by ensuring that no medical debt—regardless of the amount—will affect credit reports moving forward.

As this policy takes effect, it signals a shift in how financial systems view medical debt. By recognizing its unique nature and removing it from creditworthiness assessments, the rule represents a significant step toward a more equitable credit reporting system. While challenges remain in addressing the broader issues of healthcare affordability, this policy offers immediate relief to millions of Americans and sets a precedent for prioritizing consumers’ financial well-being.

For many, this rule is more than just a financial policy—it's a step toward fairness, compassion, and a recognition of the burdens that medical expenses can place on everyday Americans. As the Biden administration continues to roll out this and other consumer protection measures, the hope is that more families will find it easier to recover from financial hardship and achieve greater economic security.