Congress considers a bill that could help your credit report

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Congress is weighing a new bill that would keep medical debt from wreaking havoc on millions of consumers' credit ratings.

On Wednesday, the U.S. House of Representatives passed, by a vote of 336 to 82, the Medical Debt Relief Act, also known as H.R. 3421.

The bill, originally introduced last year in the House Financial Services Committee, would make it illegal to include medical debts on a consumer's credit reports, if those debts were paid or settled more than 45 days before the credit report is issued.

According to credit expert Rodney Anderson, who pushed for this bill and who has examined thousands of credit reports, some 40% of all credit reports have medical collections on them. According to his statistics, 12% of those collections have been paid; the other 88% were unpaid.

He also noted that people of every income level suffer from this problem – from lower income and middle class Americans to high net worth individuals.

"I talked to a lady the other day who told me: 'I didn't know that when my child got sick that my credit was going to get sick too'," says Anderson.

Indeed, the issue of medical debt impacts tens of millions of people -- from a credit standpoint and financially. In fact, according to the Commonwealth Fund, medical bill problems or accrued medical debt affects roughly 72 million working-age adults in America.

In 2007 alone, 28 million working-age American adults were contacted by a collection agency for unpaid medical bills. (More recent data isn't available. But those numbers undoubtedly increased during the recession). Also, studies show that medical bills are the single-largest cause of bankruptcy filings.

The House passage of the Medical Debt Relief Act now opens the door for the Senate to pass similar legislation, something expected to happen in a "lame duck" session after the November elections.

The Senate version of the bill isn't as far along, but it also appears to have wide bi-partisan support. It's currently in the Senate Banking Housing and Urban Affairs subcommittee.

In introducing the legislation in the House, Rep. Mary Jo Kilroy (D-Ohio), noted that "medical debt collections are more likely to be in dispute, inconsistently reported, and of questionable value in predicting future payment performance because it is atypical and non-predictive."

When asked why Congress should remove certain medical debts from consumers' credit reports, Anderson echoed Kilroy's sentiments. But he also noted another reason. He said medical debts are unlike other debts simply because the entire medical billing process is overly complex and almost completely in lacking transparency to consumers.

"Medical debt has a third party biller, called an insurance company," Anderson said. "That makes it very complicated and confusing for consumers. Most times we walk out of a hospital or doctor's office, there's no checkout line specifying your exact bill. We don't know exactly what we owe nor do we know what the insurer will pay."

Since the medical billing system is "flawed, and not accurate," Anderson said, small and large medical bills alike are often disputed by consumers -- many of whom wind up with dings on their credit reports over medical bills.

Having paid or settled medical bills deleted from consumers' credit reports could potentially boost millions of people's credit scores, giving them access to credit (like mortgages, auto financing or business loans) at much better rates and terms.

That would be welcome news to scores of consumers, especially considering recent data from Fair Isaac, creator of the FICO credit score, that about 40 million Americans – roughly one out of four with a credit file – have bad credit, or a credit score below 600.
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