Consumer Credit and the Removal of Medical Collections from Credit Reports
The three nationwide consumer reporting companies announced the removal of medical collections under $500 from consumer credit reports on April 11, 2023. We estimate that this reporting change removed at least one medical collection from the credit reports of 22.8 million people and removed all medical collections from the credit reports of approximately 15.6 million people.
To investigate the potential impacts of this reporting change on credit availability, we use the CFPB’s Consumer Credit Panel to study removals of medical collections from credit reports that occurred between 2012-2020. Our event study analysis shows that people experience a 25-point increase in their credit score, on average, in the first quarter after they have their last medical collection removed from their credit report. This average increase is 21 points for people with medical collections under $500 and 32 points for people with medical collections over $500.
We then consider associations with increases in credit availability. We find that revolving and installment credit increase three percent for the average person eighteen months after their last medical collection is removed from their credit report. While people are more likely to have a first-lien mortgage inquiry in the first quarter after their medical collection is removed, this association is not persistent, unlike the results for credit score, revolving credit, and installment credit. We interpret this result as evidence that people may work to remove medical collections from their credit report when they apply for mortgage credit.