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Many responsible Americans have struggled with medical debt and been unable to qualify for home financing as a result. But recently, the credit bureaus announced new rules that will improve the credit qualifications of many people with medical debt in collections. Here’s what’s changed and what it means.

  • Medical debt that is in collections is considered seriously derogatory to someone’s credit, and until recently, even an account with a $0 balance could be included on a person’s credit reports for up to seven years, significantly hindering their ability to qualify for home financing.
  • Now, as of July 1, 2022:
    • All paid medical collections no longer appear on credit reports or factor into credit scores.
    • All unpaid medical debts must now be in collections for at least a year (previously six months) before they appear on credit reports or factor into scores.
  • Expected January 2023:
    • All unpaid medical collections with balances under $500 will also no longer be included on credit reports or factored into scores.
  • What this means:
    • Borrowers no longer must negotiate with collection agencies to have paid medical debt removed from credit reports – they only need to reduce their balances to $0.
    • Borrowers whose credit profiles improve from these new rules may now qualify for home financing if they didn’t before or may now qualify for improved terms.

If you know someone who has been unable to obtain home financing due to their credit, this is a great time for them to see if their qualifications have improved. Get in touch for a free mortgage consultation.

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