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How could Biden’s proposal of removing medical bills from credit scores affect people’s ratings?

VP Harris announced proposed new rules that would stop medical bills from affecting credit scores which would benefit millions of Americans.

Millions stand to benefit from new rules on credit scores
Gary CameronREUTERS

The Biden Administration has been implementing a number of measures to help Americans get out from under the burden of debt. The latest proposal was announced by Vice President Kamala Harris on Thursday which will address the “tremendous burden of medical debt.”

The White House is proposing to remove medical debt from credit scores which once put into effect would benefit millions of Americans. “We know credit scores determine whether a person can have economic health and well — well-being,” VP Harris said. “Much less the ability to grow their wealth.”

How could Biden’s proposal of removing medical bills from credit scores affect people’s ratings?

“Right now in our country, one in three adults — some 100 million Americans — struggle with unpaid medical bills,” said VP Harris during a press call to announce the new proposal. The rules which will be put forth by the Consumer Financial Protection Bureau (CFPB) are two fold. One, consumer credit reports will not include medical debt, and two, creditors will not be able to use medical debt to determine a person’s eligibility for credit.

Together these measures will allow Americans to be better able to “invest in their future.” According to CFPB data, around 20 percent of Americans report having medical debt many of whom “silently suffer under the burden and weight of this debt.”

Having a good credit score is incredibly important for getting a better rate to buy a home or a car. It can make the difference whether someone who wants to start a small business can get the funding they need to get off the ground. Or even whether a landlord is willing to rent out a property to a prospective tenant.

All of these issues can have knock-on effects for the quality of life an individual experiences. VP Harris gave the example of a person who can purchase a car can more easily get to a job instead of wasting time on multiple forms of public transportation.

Also more working people will be able to get a mortgage to move into their own home instead of paying rent and thus opening the door to creating intergenerational wealth. More Americans will qualify for a loan from a bank and not have to rely on predatory payday lenders.

More entrepreneurs having access to loans to start their business will benefit the communities in which they live with greater economic activity.

Medical billing data is less predictive of a persons financial health

In a separate statement from the CFPB, the agency notes that “medical billing data on a credit report is less predictive of future repayment than reporting on traditional credit obligations.” Furthermore that “mistakes and inaccuracies in medical billing are common” which in turn can then be “compounded by other problems such as disputes over insurance payments or complex billing practices.”

When someone gets sick, they should be able to focus on getting better, rather than fighting debt collectors trying to extort them into paying bills they may not even owe,” said CFPB Director Rohit Chopra.