This week, the three nationwide credit reporting agencies announced a join plan to significantly change medical collection debt reporting to support consumers faced with unexpected medical bills. These joint measures will remove nearly 70% of medical collection debt from consumer credit reports. It’s a step they’re taking after months of industry research.

According to the Kaiser Family Foundation, two-thirds of medical debts are the result of a one-time or short-term medical expense arising from an acute medical need. After two years of the COVID-19 pandemic and a detailed review of the prevalence of medical collection debt on credit reports, the credit agencies are making changes to help people to focus on their personal wellbeing and recovery.

Effective July 1, 2022, paid medical collection debt will no longer be included on consumer credit reports. In addition, the time period before unpaid medical collection debt would appear on a consumer’s report will be increased from 6 months to one year, giving consumers more time to work with insurance and/or healthcare providers to address their debt before it is reported on their credit file.

In the first half of 2023, Equifax, Experian and TransUnion will also no longer include medical collection debt under at least $500 on credit reports.

The companies’ CEOs provided a joint statement on the decision to change medical collection debt reporting:

Medical collections debt often arises from unforeseen medical circumstances. These changes are another step we’re taking together to help people across the United States focus on their financial and personal wellbeing,” said Mark W. Begor, CEO Equifax; Brian Cassin, CEO Experian; and Chris Cartwright, CEO TransUnion.

A February report by the Consumer Financial Protection Bureau found that medical debt collections were “less predictive of future payment problems than other debt collections,” such as car loans and mortgages.

The report also said Black, Hispanic and low-income individuals are more likely to have medical debt. Older people and veterans are also heavily impacted, according to the report.

The CFPB wrote that because of this, these groups “may be more heavily impacted by outdated credit models,” therefore affecting their chances of securing housing, car loans and insurance.

Ted Rossman, a senior industry analyst at Bankrate, told CNBC  that removing paid medical debt from credit reports could help consumers increase their credit scores, especially for older FICO models that are used for obtaining federally backed mortgages.

“There seems to be an acknowledgment that medical care is essential and should not be penalized by the credit bureaus,” Rossman said.

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