What the New Federal Rule Means
When you get a hospital bill, you might think, “Will this impact my credit?” The answer is changing – with significant consequences for millions of Americans.
For millions of Americans, medical emergencies leave not only emotional and physical scars, but also significant ramifications for their finances. For many, one of the significant concerns is the impact of these bills on their credit. So does medical debt affect your credit score? In the past, it answered a definitive yes. But in 2025, there is a federal rule that is going to change this.
In February 2025, the Consumer Financial Protection Bureau (CFPB) proposed a Rule that prohibits lenders from using medical debt as part of their credit decision making process. If this will be fully implemented, it will greatly impact how medical bill collections are shown – or not shown – as part of your credit report.
The New Federal Rule: A Landmark Shift
This federal rule aims to eliminate the impact of medical collections on individuals attempting to use credit. Before this change, unpaid medical bills could be sent to collections and remarkably, have funds reported to credit bureaus; which would drastically negatively impact a borrower’s ability to get credit for years. The CFPB has now suggested that lenders should disregard collections related to medical collections entirely during the credit application phase.
How big is this a huge rule? The CFPB estimates around 15 million Americans carry medical collections. Which means over 49 billion dollars in debt’s being held in the credit files. A majority of these bills are unexpected, disputed or based on delays of insurance payments; but not necessarily related to unresponsiveness to finances.
By taking this data out of the equation, the CFPB estimates an average increase in credit scores will be around 20 points. A small increase could mean qualifying for that much wanted mortgage, a car loan or accessing better rates for credit cards. In fact, the bureau estimates nearly 22,000 more mortgages could be issued annually due this change.
Can Medical Debt Affect Your Credit Today?
Even with today’s new rule, unpaid medical bills can still result in a credit hit. In fact, when a medical provider sends an unpaid balance to a collections agency, that debt shows up on your credit report. And yes, even small medical bills; a ticket to the Emergency Room, for instance, can be sent to collections if they go unpaid long enough.
Can a medical bill go to collections? Yes. Can medical bills impact credit? Yes. Owing money for a medical service is similar to a default on a credit card or default on a personal loan, they are both accounts that were not paid. It is just that the medical treatment was due to a health issue and not discretionary expense. That’s why the rule is so important, it recognizes that medical collections are not necessarily a reliable predictor of credit eligibility.
How Does Medical Debt Affect Credit Scores?
The inclusion of medical debt on your report can decrease your score by dozens of points depending on your overall credit profile. If your score is already on the borderline, then this may be the difference between getting approved for a loan or being denied. Credit score with medical debt is often worse, because lenders interpret collections, no matter how they came about. as not meeting your financial obligations.
For worse, credit bureaus and medical debt reporting are just not accurate. Many consumers find long-lost bills or bills that should have been covered by their insurance to appear as negative can visit and this confusion, and miscommunication, affect millions of people for a long time.
What About Medical Debt Removal from Credit Reports?
The good news is that changes are already happening. As of 2023, the three major credit bureaus (Equifax, Experian, and TransUnion) agreed to remove paid medical collections and all unpaid medical bills under $500 from a consumer’s credit report. The new federal rule describes the path to advance this change by eliminating all medical debt from credit reports, when lenders make lending decision.
If you are asking yourself how to remove medical debt from a credit report, the only real way to make that happen is by paying the balance or disputing it as inaccurate. If the new rule goes through and all the consumer protections are fully adopted, medical debt forgiveness (at least as far as credit scoring goes) is automatic.
Do Medical Bills Go to Collections Under the New Rule?
One key clarification: the rule does not prohibit suit or collections on medical bills by lenders and their third-party agency. They can still pursue payment. But, do medical debts affect your credit under this rule? Not in the manner they once did. The change is that lenders will no longer be allowed to include that data in their lending decisions.
Of note, collection agencies can still place the debts on your credit file and this may impact non-lending decisions such as housing and employment- areas that are not addressed in the rule. And one other point, credit card debt used to pay medical debts is still reportable and can have an impact.
Is This Change Permanent?
Although the new rule is a significant milestone in consumer credit reform, it is not completely secure for the future. Industry groups are already working to resist it, and any political change may delay or reverse any implementation. As of now, the rule remains in the final approval phase, and there is the potential for legal or legislative challenges.
Nonetheless, the CFPB, along with other consumer advocates, argue that medical debt is not predictive of someone’s ability to repay the traditional loans, and should be altogether removed from credit scoring models. If successful, it could completely change the dialogue surrounding health-related financial stress in the United States.
Final Thoughts
So, to circle back: does medical debt have an impact on your credit score? The answer is yes; it can still impact your credit score today. But because of broad reforms, that answer is changing quickly. In the near future, it is possible that medical collections will no longer be considered in the credit scoring formula, as far as lenders are concerned.
That does not mean you can completely ignore medical bills. Providers can still pursue collections. And medical debt may still be reflected on your credit report, just not included in the calculations lenders will use. It is always a good idea to maintain communications with your medical provider, check your credit reports regularly, and dispute errors.
In the end, the impact of medical debt on credit has diminished, but it is not completely passed. For now, educate yourself, protect your credit, and gear up for a more equitable and sustainable credit landscape.
