The New Credit Score Relief: How Medical Bills No Longer Impact Home Buying

<div role=”article”> <In a significant policy shift, the Biden administration has finalized a rule that removes medical debt from credit reports, and this change could profoundly affect the American dream of homeownership. Announced on January 7, 2025, this rule aims to alleviate the financial burden that medical debt places on individuals’ credit profiles, making home purchasing more accessible for millions.

<script> function simulateCreditChange() { let creditScore = 650; // Starting score let medicalDebtRemoved = document.getElementById(‘medicalDebt’).checked; if (medicalDebtRemoved) { creditScore += 20; // Assuming medical debt removal increases score by 20 points } document.getElementById(‘scoreResult’).innerText = `Your simulated new credit score: ${creditScore}`; } </script> <input type=”checkbox” id=”medicalDebt” onchange=”simulateCreditChange()”> <label for=”medicalDebt”>Medical Debt Removed?</label> <p id=”scoreResult”></p>

Understanding the Change
Medical debt has long been a major barrier for many in securing loans, including mortgages. According to the Consumer Financial Protection Bureau (CFPB), this new regulation will remove an estimated $49 billion in unpaid medical bills from the credit reports of about 15 million Americans. This policy means that medical debt no longer serves as a credit score depressant, potentially boosting scores by an average of 20 points for those previously affected.
Impact on Home Buying

• Enhanced Mortgage Approval Rates: With medical debt no longer dragging down credit scores, more people are likely to qualify for mortgages. The CFPB estimates that this change could lead to an additional 22,000 mortgage approvals every year. This is a direct result of improved credit scores, which are pivotal in determining loan eligibility.
• Better Loan Terms: Beyond just qualifying for a loan, individuals might now secure better interest rates. A higher credit score can mean lower interest rates, saving homebuyers thousands over the life of their mortgage. This is particularly critical in today’s economic climate where every percentage point on an interest rate can significantly affect monthly payments.
• Reduced Stress in Home Buying: The psychological impact of this change cannot be overstated. Knowing that past medical emergencies won’t haunt one’s financial future can remove a significant amount of stress from the home-buying process. Prospective buyers can now focus more on finding the right home rather than worrying about past bills.

What This Means for You
If you’ve been holding off on buying a home due to medical debt affecting your credit, this policy shift could be your green light. Here’s what you should do:

• Check Your Credit Report: First, get a free copy of your credit report from major bureaus like Equifax, Experian, and TransUnion to ensure that medical debts have been removed. This can now be done weekly through AnnualCreditReport.com until the end of 2023.
• Reassess Your Credit Score: With medical debt out of the equation, your credit score might be higher than you thought. Use this opportunity to reevaluate your financial standing and possibly apply for pre-approval for a mortgage.
• Plan Your Purchase: With potentially better credit, consider consulting with a mortgage advisor to understand what types of loans you qualify for now. This might also be a time to look into down payment assistance programs if you’re still navigating financial recovery from past medical expenses.

The Bigger Picture
This policy not only aids in home buying but also signifies a broader understanding of the economic pressures medical debt places on families. Vice President Kamala Harris emphasized that this rule would be “lifechanging” for millions, noting it would ease access to not just housing but also car loans and small-business loans.
The removal of medical debt from credit considerations reflects a shift towards a more compassionate financial system where health crises do not dictate economic opportunity. It’s a step towards ensuring that one’s health does not permanently alter their financial stability, opening doors to homeownership that were previously blocked by the weight of medical bills.
As we move forward, this policy could set a precedent for how financial systems might consider other forms of debt, potentially leading to broader reforms in credit reporting and lending practices. For now, if you’re dreaming of owning a home, this change might just be the key to unlocking that dream.> </div>

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