The next phase of the Biden Administration’s program that changes the way medical debt is recorded on credit reports is underway. NerdWallet personal finance expert Sara Rathner joins host J.R. Whalen to discuss what this could mean for many Ameircans’ credit scores.
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This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
J.R.Whalen: Here’s Your Money Briefing for Thursday, February 9th. I’m J.R. Whalen for the Wall Street Journal. Millions of Americans are about to see their credit profile get a cleaner bill of health. Medical debt under $500 is going to be lifted from their credit reports.
Sara Rathner: Debt is often thought of as being this frivolous thing. You overspend on things you don’t need, but medical debt is the result of something that’s not your fault.
J.R.Whalen: So when are you likely to see that change to your credit report and what could that mean for your credit score? We’ll talk to NerdWallet personal finance expert, Sara Rathner, about that after the break. Check your credit report. More than 40 million Americans will have medical debt of less than $500 lifted from their credit portfolio. That may not sound like a lot, but it could mean a significant boost to your personal finances. Let’s find out more from Sara Rathner, a personal finance expert with NerdWallet. Hey Sara, thanks so much for being with us.
Sara Rathner: Thank you for having me.
J.R.Whalen: So Sara, we’ve been hearing about changes to how medical debt shows up on credit reports for several months now. Catch us up on how this has been rolled out.
Sara Rathner: The Biden administration has made some changes about how medical debt is reported on credit reports, and to what extent medical debt is reported. So one big change we saw last year was a doubling of the length of time before a debt that had gone to collections would show up on your report. So it used to be six months, now it’s 12 months, giving people more time to negotiate bills with healthcare providers and insurance companies. And then a change we’re going to see coming up, there’s a plan to remove medical debt of up to $500 from people’s credit reports entirely by the middle of this year. And it’s already February, so that means within just a few months, people are going to begin noticing changes to their credit report accordingly.
J.R.Whalen: How significant is this that it’s medical debt of $500 or less that’s being wiped away?
Sara Rathner: This could potentially be quite significant. Obviously your credit score is made up of a combination of lots of different factors, and if you have other debts or other late or missed payments, those are also going to negatively affect your credit score. But if this is the only mark that’s really hurting you, you might notice an improvement in your credit score over time. And that, I think, is especially significant because debt is often thought of as being this frivolous thing. You overspend on things you don’t need, but medical debt is the result of something that’s not your fault. It’s an emergency situation, an illness or an injury that you need to take care of, and unfortunately can be quite expensive to resolve. And so this could be very helpful for people who have these unpaid bills, they’re struggling to pay them off, or there’s an error on the bill and they’re renegotiating them and then they’re not going to be penalized in terms of their credit score just because they’re going through that renegotiation process.
J.R.Whalen: So people’s credit scores may increase as a result of this. That could really give some people a boost in managing their finances.
Sara Rathner: Yes, especially if an unpaid medical bill was the one thing that was dragging your credit score down. To have that issue resolved and taken off of your credit report would absolutely benefit you over the long run. If you’re on the border between fair credit and good credit, and getting these medical bills off of your credit report can push you into good credit territory, that opens up so many possibilities in terms of the credit cards you can qualify for, the loan terms you can qualify for if you were thinking of buying a house or buying a car in the near future. It can really be helpful to you.
J.R.Whalen: Okay, so this is good news for a lot of people. But how can they confirm that the medical debt has been lifted from their credit report?
Sara Rathner: So definitely keep in mind that through the end of 2023, you can get once a week your credit reports from all three of the main credit bureaus from AnnualCreditReport.com. It’s free. You should never pay to access your credit report. You are entitled to that information. So take advantage of this and check your credit reports periodically throughout the year, especially after the middle of this year. If you happen to see a medical debt that should have been removed, you can dispute this with all three credit bureaus, and you can also talk to your insurance provider or your healthcare provider to find out how they’ve been reporting this information. Hopefully the dispute process would be enough to clear out anything that should have cleared out on its own but didn’t.
J.R.Whalen: Are errors common in this area?
Sara Rathner: It’s incredibly common for there to be errors made in this process. You should always double and triple check. The explanation of benefits that you get from your insurance company, that’s not a bill, but it does spell out what you’ve been charged and why. And any other bill that lists out line items of what you’ve been charged for any sort of medical procedure or doctor’s visit, because you might be charged incorrectly for things, for services you didn’t receive. Sometimes things are incorrectly coded to insurance companies. For example, my husband went in for an annual physical, which should be free with most major insurance. It was coded incorrectly as a medical visit and not an annual exam, and he was charged to co-pay. It’s not a huge amount of money, but it’s the principle of the thing. Why pay $30 for something that should have cost $0? And so these things are worth disputing. Sometimes it takes months to resolve these issues, but when you’re talking about a bill that’s wrong to the tune of hundreds of dollars, it is worth spending that time.
J.R.Whalen: So the consumer should play an active role in making sure everything is adding up.
Sara Rathner: Right. So often we pay money toward things that are wrong or slightly inconvenient just to get them to go away. And I absolutely get it because it is a privilege to have the time to fight these fights and to sit on hold and to ask these questions. So sometimes it is just easier to just pay the bill and move on with your life. But your money is important to you and nobody cares more about your money than you do. That means that sometimes you have to be your best advocate in situations like this. It’s hard to do, especially if you’re not feeling well, if you’re dealing with an ongoing health issue. But as best you can, if there’s somebody in your life who can help you make that call, that can be really worthwhile too.
J.R.Whalen: Now, a lot of people have more than just medical debt on their credit report, or they might have medical debt well in excess of $500, which won’t be wiped away. So how can they manage that debt to potentially boost their credit score to the next level?
Sara Rathner: Yeah, this is a especially important time to think about ways to reduce your debt and lower the cost of your debt, because interest rates are so high. Especially for credit cards, the average interest rate is north of 20%. That is a lot of money. So step one is if you have high interest debt, you could start by thinking of ways to lower the interest and therefore lower the cost of that debt. There are a few ways you can go about that. One is a balance transfer credit card. That’s typically for consumers who have good or excellent credit. It allows you to move your debt onto a card that charges 0% interest for a promotional period of time. Sometimes these timeframes can be quite long, a year, sometimes almost two years. And if you have a debt that was the result of a one-time expense, it gives you a nice buffer to make smaller monthly payments that might be a little bit easier on your budget, and still get out of debt before that zero interest promotion ends. So you can save potentially hundreds of dollars on interest by utilizing these products carefully. The thing to remember, of course, is once that promotion is over, the interest rate goes right back up to its normal levels. So if you are concerned that you won’t be able to make payments in time to finish out the promotion, then that’s just something to budget for. If there’s even just a month or two where you’re paying interest, that still might be a substantial savings compared to doing nothing at all. If that’s not an option for you, then you can also look into things like personal loans. These are often lower interest compared to credit cards. They allow you to consolidate multiple loans into one set monthly payment for a set period of time. That could be a lot easier to budget for compared to variable credit card bills every month.
J.R.Whalen: All right. That’s NerdWallet personal finance expert, Sara Rathner. Sara, thank you very much for being with us.
Sara Rathner: Thank you.
J.R.Whalen: And that’s Your Money Briefing. I’m J.R. Whalen for the Wall Street Journal.