Most medical debt can no longer hurt your credit score under new California law

Everyday people across the country skip medical care because of cost. Those who do seek medical help may end up with a balance they can’t pay off. That debt can hurt people’s credit scores, resulting in long-term financial burdens.

Starting Jan. 1, a new state law will prohibit health providers and debt collectors from reporting medical debt information to credit agencies. That means unpaid medical bills should no longer show up on people’s credit reports, which consumer advocacy groups say is a boon for patients with debt.

Here’s why: While the law will not forgive someone’s debt, by keeping it off credit reports, it might provide some reassurance that a hospital stay or trip to urgent care won’t later affect their credit standing. Lower credit scores usually result in higher interest rates and make it harder for people to qualify for a home rental, a car loan or even employment.

During legislative hearings, the law’s author, Sen. Monique Limón, a Democrat from Santa Barbara, contended that because people don’t choose to have a medical emergency or illness, this type of debt should not count against them. Supporters also argued that medical debt is more prone to inaccuracies because of billing mistakes by health providers and insurers.

The main three credit bureaus – TransUnion, Equifax and Experian — stopped reporting medical debt under $500 in 2023. But most people with medical debt owe far more than that. The national average for medical balance is $3,100, according to the Consumer Financial Protection Bureau. In California, an estimated 38% of residents carry some type of medical debt; that figure climbs to more than half for low-income residents, according to the California Health Care Foundation.

One key caveat is that patients can only take advantage of this law if the debt is owed directly to a medical provider or collection agency, but not when the debt is charged on a medical credit card or a general credit card.

This new law follows similar ones enacted in a handful of other states, including New York and Colorado. It also mirrors a proposal put forth by the Biden administration to do the same nationwide. However, with a new administration taking over in January, it is unclear whether the federal proposal will go anywhere.

Limón’s office explained that under the law patients have the right to sue a debt collector or provider who reports a medical debt to a credit bureau. Consumers may also choose to file a complaint with the state’s Department of Financial Protection and Innovation, which has authority over debt collectors. Consumers can also file a complaint with the California Attorney General’s office.

Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit www.chcf.org to learn more.