Will medical debt impact your credit score in 2025? Here's the truth

The Pervasive Issue of Medical Debt in the United States

Medical debt has become a widespread and pressing issue in the United States, impacting approximately 100 million citizens. With an estimated $220 billion in outstanding medical debt, it's no surprise that over half of all collection accounts are related to medical bills. These debts often come as a shock to individuals, and many find that they contain errors—over 70% of people report inaccuracies in their medical bills. Unlike other forms of debt, medical expenses are typically not voluntary, which can place a heavy burden on individuals, particularly those with disabilities or limited financial resources.

In July 2025, a significant court decision allowed medical debt to remain on credit reports, reversing a previous policy that had aimed to shield consumers from the negative effects of such debt. Judge Sean Jordan's ruling was seen as a setback for the Consumer Financial Protection Bureau (CFPB), which had previously sought to protect consumers from unfair credit practices. The decision, backed by the Cornerstone Credit Union League, emphasized the importance of lenders evaluating a consumer’s ability to pay, according to the Consumer Data Industry Association (CDIA).

The CFPB had previously introduced a rule that would have removed medical bills from credit reports, preventing lenders from using this information when making credit decisions. This regulation was designed to close a loophole that allowed debt collectors to pressure individuals into paying through the threat of credit reporting. The CFPB's research suggested that medical debt was not a reliable indicator of loan default risk. The rule was expected to increase credit scores by an average of 20 points and help 22,000 additional people qualify for affordable mortgages each year.

Following the 2025 ruling, medical debt can still affect your credit score, but there are some protections in place. Medical debt is only reported if it is sold to a collection agency, and there is a one-year grace period before it appears on your credit report. This gives you time to address the debt before it impacts your credit. Since April 2023, debts under $500 are no longer included on credit reports, and settled debts no longer appear. However, unpaid balances over $500 can stay on your report for seven years, similar to other types of debt.

While VantageScore removed medical debt from its calculations in 2023, FICO, which is used by over 90% of lenders, still includes it, though with less weight in its latest models. Medical debt can significantly harm your credit score, potentially lowering a good score by up to 100 points. Understanding how medical debt affects your credit is essential for maintaining financial stability and building a strong credit profile.

Strategies to Manage and Reduce Medical Debt

To tackle medical debt, consider negotiating with healthcare providers, who may offer discounts or interest-free payment plans. Nonprofit organizations like Undue Medical Debt or the Patient Advocate Foundation can also provide assistance. Many nonprofit hospitals are required to offer financial aid programs, and Medicaid may cover certain bills retroactively. Debt consolidation or settlement could be options, though they involve fees and potential risks.

Monitoring your credit is crucial. Regularly review your credit report to ensure no incorrect medical collections are listed, and dispute any errors directly with the credit bureau. To avoid future debt, review your insurance coverage, request cost estimates before undergoing treatment, choose generic medications when possible, or inquire about a Health Reimbursement Arrangement (HRA) from your employer.

Future Outlook and Legislative Efforts

Looking ahead, more than a dozen states have introduced legislation aimed at preventing medical debt from affecting credit scores. Although the 2025 ruling reintroduced medical debt to credit reports, recent reforms still offer some protections, such as the one-year grace period and the exclusion of smaller debts. The CFPB may appeal the ruling, though this is considered unlikely. Congress continues to push for legislative changes, with efforts focused on revoking the CFPB's Regulation V, which could prevent similar regulations in the future.

Despite the challenges, ongoing reforms and awareness are helping to address the complexities of medical debt and its impact on credit. Individuals must remain informed and proactive in managing their financial health.