Credit Scores of Millions Could Be Improved by Biden Plan

The Biden administration has proposed a new measure that would prevent unpaid medical bills from showing up on Americans' credit reports used by creditors when evaluating borrowers' credit applications and making underwriting decisions.

The proposal, which is yet to be finalized, was announced on Thursday by the Consumer Financial Protection Bureau (CFPB), which said that the measure "would help end coercive debt collection tactics, clean up inaccurate data, and improve credit score predictiveness."

Removing medical debt from people's credit reports, according to the federal agency, would help Americans recover financially from medical crises, stop debt collectors from pressuring people into paying bills "they may not even owe," and get rid of data that it said are "often plagued with inaccuracies and mistakes."

"For years, medical debt has harmed people's credit scores," Vice President Kamala Harris wrote on X (formerly Twitter). "Today, the Consumer Financial Protection Bureau is announcing plans to remove medical debt from Americans' credit reports and allow millions of people to invest in their futures."

Newsweek reached out to the CFPB press office and the White House via email for comment.

A CFPB report from last year shows that about 20 percent of Americans said they have medical debt—a situation that was made worse by the COVID-19 pandemic, with both insured and uninsured patients spending more on testing and hospitalizations.

"Research shows that medical bills have little predictive value in credit decisions, yet tens of millions of American households are dealing with medical debt on their credit reports," said CFPB Director Rohit Chopra in a press release from the agency.

"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," Chopra said.

If passed, the new bill would stop consumer credit companies from including only non-medical information in reports used by creditors when deciding on borrowers' applications.

"Excluding medical debt from the calculation of credit scores could offer a much-need boost for Americans living paycheck to paycheck, who've found themselves financially strapped from outsized health bills," Thomas Gift, an associate professor who heads the Centre on U.S. Politics at King's College London, told Newsweek.

"At the same time, it's unlikely to dwarf other economic concerns in 2024, especially inflation, that are likely to motivate voters in financially precarious positions," Gift said.

But, if approved, the proposal could turn into another move from the Biden administration which would rally voters around the president's campaign for 2024.

The move—which would help borrowers by possibly increasing their credit score, making it easier for them to get a mortgage and buy a home, or own a small business—has been celebrated by many on social media who applauded the Biden administration for the proposal.

"This is so genuinely a huge deal to millions of patients. Medical debt should never have been impacting our credit in the first place—and yet it's kept so many of us from getting the homes, cars, and security we deserve," Samantha Reid of the Center for American Progress Action Fund wrote Thursday on X.

"Including #MedicalDebt on credit reports disproportionately harms disabled people, particularly disabled women of color. Thank you to the @CFPB for beginning this important rulemaking process," Marissa Ditkowsky, the Disability Economic Justice counsel at the National Partnership for Women & Families posted on X.