Under a major overhaul by the credit bureaus announced Monday, unpaid medical bills will be treated differently and errors on your credit report could become easier to fix.
The changes, applauded by consumer advocates, come as a result of an agreement between the big three credit bureaus, Experian, Equifax and TransUnion, and New York Attorney General Eric Schneiderman.
"It usually takes an act of Congress to get these types of changes," says John Ulzheimer, president of consumer education at CreditSesame.com, who called the changes some of the most substantive in over a decade.
Your credit reports are used to calculate your all-important credit score, which determines your access to loans, credit cards, apartments and even jobs. It also determines the interest rates you pay.
"This agreement will reform the entire industry and provide vital protections for millions of consumers across the country. I thank the three agencies for working with us to help consumers," said Attorney General Schneiderman in a statement.
Under the new plan, unpaid medical bills won't be reported to the credit bureaus for six months after they're recorded as delinquent. This gives insurance companies time to pay claims and prevents medical debt from ending up on your credit reports because there were delays or disputes.
"If you're paying for insurance and insurance is paying for that bill, you shouldn't have credit issues on top of that," says Gerri Detweiler, director of consumer education at Credit.com.
Credit bureaus will also remove medical debts that have been or are being paid by insurance. Typically, delinquencies remain on your report for seven years, even after the debt has been paid.
Unpaid medical bills have become increasingly commonplace on credit reports, with 52% of all unpaid debt on reports stemming from medical expenses, according to a recent report from the Consumer Financial Protection Bureau. Yet the median amount is small -- $207 -- and often the result of confusion when it comes to billing and insurance, they say.
Last year, Fair Isaac Co., which produces the leading credit score, known as a FICO, said it would give less weight to medical debt when calculating your score. This came as recognition that someone might still be a good borrower even if they've struggled to pay medical bills or unknowingly had them end up in collections. But since adoption of new scores is uneven and slow, the changes announced Monday will help ensure that certain medical debt is kept off your reports in the first place.
It may also get easier to dispute an error on your credit report.
For example, say a loan payment to your bank is listed as late on your credit report, when you know it wasn't. You send the credit bureau a dispute with papers that prove you paid on time, which gets passed along to the bank. But the bank still maintains that you were late. In the past, that would be the end of it and the late payment would remain on your credit report.
Now an employee at the credit bureau will investigate before automatically siding with the lender. Before, if a dispute went to a lender (which 85% do, says the CFPB), their word was typically the final word. The whole system was largely automated, with disputes reduced to a code. Under the changes announced Monday, employees at the credit bureaus will review rejected disputes. If they agree with your claim, they can override the lender and remove something from your credit report.
This is a win if you've ever been frustrated when trying to get wrong info off your reports. According to a 2013 study by the Federal Trade Commission, one in 20 people have substantial errors on a credit report — enough to result in at least a 25-point credit score jump once fixed.
While certain errors are easy to remove, some aren't. Credit bureaus will also now specially train employees to review disputes that relate to identity theft, fraud and instances where your file has been mixed up with someone else's. A mixed file can be one of the most difficult problems to solve, says Ulzheimer, since information from a shared name or similar social security number has a way of landing on your reports again and again.
Now, credit bureaus will share information with each other when they've determined that one file has been mixed up with another.
You will also receive more information with the result of your dispute, including instructions for additional steps to take if you aren't satisfied. If your dispute resulted in a change to your report, you're entitled to a second free credit report from that bureau. (Consumers are already entitled to one free credit report a year from each bureau at annualcreditreport.com).
The nationwide roll-out will begin over the next several months and take up to three years to complete, says a spokesperson at Consumer Data Industry Association, the trade group representing the credit bureaus.
