Data Point: Consumer Credit and the Removal of Medical Collections from Credit Reports

CONSUMER FINANCIAL PROTECTION BUREAU | APRIL 2023

Data Point: Consumer

Credit and the Removal of

Medical Collections from

Credit Reports

Table of contents

1. Executive summary ..............................................................................................2

2. Introduction ........................................................................................................... 4

3. Medical collection removals ................................................................................7

4. Empirical approach ..............................................................................................9

5. Data ......................................................................................................................11

6. Results ................................................................................................................. 13

6.1 Medical collection removals and credit score ........................................ 13

6.2 Medical collection removals and credit availability ............................... 19

7. Conclusion ..........................................................................................................25

Appendix A: Summary statistics on medical collection removal .....................26

This is another in an occasional series of publications from the Consumer Financial Protection

Bureau’s Office of Research. These publications are intended to further the CFPB’s objective of

providing an evidence-based perspective on consumer financial markets, consumer behavior,

and regulations to inform the public discourse. See 12 U.S.C. § 5493(d).

This report was prepared by Alyssa Brown and Eric Wilson.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 1

1. Executive summary

The three nationwide consumer reporting companies (Equifax, Experian, and TransUnion)

announced that they removed unpaid medical collections under $500 from consumer credit

reports on April 11, 2023.

Medical debt is often not incurred voluntarily or with full knowledge

of its terms of repayment. Past CFPB research has shown that medical collections are less

predictive of credit risk than collections for other types of debt, but the extent to which

furnished medical collections affect people’s credit availability and outcomes remains an

unanswered question.

Our analysis shows that the removal of all medical collections from a

person’s consumer credit report can significantly improve credit availability and outcomes.

This report estimates how the removal of certain medical collections from consumer credit

reports may impact credit availability. Our analysis of a sample of final medical collection

tradelines from 2012-2020 reveals the following:

1. We estimate that 22.8 million people will have at least one medical collection removed

from their credit reports when all medical collections less than $500 are removed. This

amounts to 73 percent of the population who had medical collections on their credit

report in December 2022. Fifty percent of those with medical collections on their credit

report will continue to have medical collections on their credit report and so may

experience limited benefits from the change.

2. The average person experiences a 25-point increase in their credit score in the first

quarter after their last medical collection is removed from their credit report, in our

model. Individuals with medical collections under $500 experience an average increase

of 21 points, compared to 32 points for people with medical collections over $500.

Higher credit scores enable people to access credit at lower interest rates, and credit

Business Wire, “Equifax, Experian, and TransUnion Remove Medical Debt Under $500 From U.S.

Credit Reports,” April 2023, https://www.businesswire.com/news/home/20230411005392/en/Equifax-

Experian-and-TransUnion-Remove-Medical-Collections-Debt-Under-500-From-U.S.-Credit-Reports.

See generally: Nathe, Lucas and Ryan Sandler, “Paid and Low-Balance Medical Collections on Consumer

Credit Reports,” Consumer Financial Protection Bureau Consumer Credit Trends, July 2022,

https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-

collections-on-consumer-credit-reports.

Brevoort, Kenneth P. and Michelle Kambara, “Medical Debt and Credit Scores,” Consumer Financial

Protection Bureau Office of Research, Data Point, May 2014,

https://files.consumerfinance.gov/f/201405_cfpb_report_data-point_medical-debt-credit-scores.pdf

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 2

report information may also be considered in rental screenings and employment

background checks.

3. We find significant associations in our model between the removal of all medical

collection tradelines and the amount of credit that individuals have available to them in

revolving and installment accounts. Six quarters after the average person has their last

medical collection tradeline removed from their credit report, their total amount of

available revolving credit has increased by $1,028 and their total amount of available

installment credit has increased by $4,123.

These changes both reflect three percent

increases over their baseline amounts.

4. We see increases in first-lien mortgage inquiries in the first quarter after a medical

collection tradeline is removed. We also see an initial increase in mortgage inquiry

propensity in the last quarter in which a medical collection tradeline is reported. This is

consistent with individuals learning that they have a medical collection lowering their

credit score in the process of applying for a mortgage, working to remove the medical

collection from their credit report, and then re-applying in the subsequent quarter after

the medical collection tradeline is removed from their credit report. We believe that

people seeking a first-lien mortgage may work to remove medical collections from their

credit report as part of their process of applying for mortgage credit.

The findings in this report point toward the important effects that reducing reporting of medical

collection on consumer reports may have on individuals.

Consumer Financial Protection Bureau, “Tenant Background Checks Market”, November 2022,

https://files.consumerfinance.gov/f/documents/cfpb_tenant-background-checks-market_report_2022-

11.pdf ; Consumer Financial Protection

Bureau, “I’ve been looking for a job. What do employers see when

they do credit checks and background checks?” September 2020, https://www.consumerfinance.gov/ask-

cfpb/ive-been-looking-for-a-job-what-do-employers-see-when-they-do-credit-checks-and-background-

checks-en-1823/

We define an individual’s available revolving credit as the sum of their revolving accounts’ credit limits,

and we define an individual’s available installment credit as the sum of their installment accounts’ loan

principals.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 3

2. Introduction

Many people experience unexpected health shocks that affect their financial well-being as much

as, or even more than, their physical health. Health events are often not planned for, and many

households are unable to pay their medical bills and accrue debt as a result. Medical debt can

increase the cost and reduce the availability of credit and can even reduce access to employment

and housing.

Recognizing the unexpected circumstances that lead to medical collections debt,

the three nationwide consumer reporting companies announced the removal of medical

collections under $500 from consumer credit reports by the end of March 2023, along with two

other changes to their medical debt collection reporting.

These two other changes were

implemented in July 2022: paid medical collections were removed from credit reports, and the

delay in medical collection reporting was extended from sixth months after the first delinquency

to one year after the first delinquency. The national consumer reporting companies announced

that medical collections under $500 were removed from credit reports in April 2023.

CFPB research detailed the characteristics of individuals who are likely to be affected by these

reforms and found that, after unpaid medical collections under $500 are removed from credit

reports, about half of people with medical collections will have all their medical collections

removed from their credit reports, while about half will continue to have medical collections on

their credit reports.

We shed light on the potential effects of the reporting changes by studying medical collections

that were removed from credit reports between 2012 and 2020. We investigate how these

removals are associated with changes in credit score and credit availability. The causes of

medical collection tradeline removals are varied and not included on credit reports, making it

Consumer Financial Protection Bureau, “I’ve been looking for a job. What do employers see when they

do credit checks and background checks?” September 2020, https://www.consumerfinance.gov/ask-

cfpb/ive-been-looking-for-a-job-what-do-employers-see-when-they-do-credit-checks-and-background-

checks-en-1823/ ; Consumer Financial Protection Bureau, “Tenant Background Checks Market”,

November 2022, https://files.consumerfinance.gov/f/documents/cfpb_tenant-background-checks-

market_report_2022-11.pdf.

TransUnion, “Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical

Collection Debt Reporting”, 2022, https://newsroom.transunion.com/equifax-experian-and-transunion-

support-us-consumers-with-changes-to-medical-collection-debt-reporting/.

Business Wire, “Equifax, Experian, and TransUnion Remove Medical Debt Under $500 From U.S.

Credit Reports,” April 2023, https://www.businesswire.com/news/home/20230411005392/en/Equifax-

Experian-and-TransUnion-Remove-Medical-Collections-Debt-Under-500-From-U.S.-Credit-Reports.

Nathe, Lucas and Ryan Sandler, “Paid and Low-Balance Medical Collections on Consumer Credit

Reports,” Consumer Financial Protection Bureau Consumer Credit Trends, July 2022,

https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-

collections-on-consumer-credit-reports.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 4

difficult to determine exactly how the removal of medical collections under $500 from credit

reports will affect measures of credit availability. Medical collections may have been removed

from credit reports due to unobservable factors that also affected consumers’ financial well-

being. We would not want to mistakenly attribute the effects of these other variables to the

medical collection removal, and so we do not interpret our findings as causal evidence of how

consumer credit availability will necessarily change when medical collections under $500 are

removed from credit reports. Instead, we conclude that our studied credit availability measures

have meaningful associations with medical collection reporting.

We center our analysis around credit scores because they have important effects on the loan

terms and likelihood of approval that people face when they apply for credit, though they are

also an important barometer of financial well-being in their own right. We find that credit scores

increase by 25 points, on average, in the first quarter after the last medical collection is removed

from a consumer’s credit report. The average increase is larger for individuals whose medical

collections are over $500, with an associated increase in credit score of 32 points compared to

21 points for people with medical collections under $500.

Our data do not include the terms of loans that are originated, but improvements in credit score

are likely to confer cheaper rates and higher approval rates for consumers seeking to obtain new

mortgages and other forms of credit. A twenty-point increase in credit score typically reduces

the upfront fee on mortgages by 0.25% of the loan balance.

This corresponds to a savings of

$625 for a mortgage of $250,000.

We also consider the overall amount of credit that

individuals have available in revolving and installment accounts. We aggregate credit limits and

loan principals across each person’s tradelines and find that, six quarters after the removal of

the last medical collection from their credit report, individuals have an average of an additional

$1,028 of revolving credit and an additional $4,123 of installment credit.

Finally, we investigate if individuals are more likely to pursue additional credit when their

medical collections are removed by studying inquiries for first-lien mortgages. Mortgage

inquiries are hard pulls of credit reports by lenders in response to applications for new lines of

credit and for increases in existing credit limits, and are one representation of demand for

Fannie Mae, “Loan Level Price Adjustment Matrix,” 2023,

https://singlefamily.fanniemae.com/media/9391/display.

Though these fees are charged to the lender, research has shown that these fees are fully passed through

to consumers. See Alexandrov, Alexei, Thomas Conkling, and Sergei Koulayev. 2022. “Changing the Scope

of GSE Loan Guarantees: Estimating Effects on Mortgage Pricing and Availability.” The Journal of Real

Estate Finance and Economics.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 5

mortgages.

People may be especially driven to improve their credit score before they apply for

a mortgage because of the important role that credit scores play in setting mortgage rates.

find a one percentage point increase in the likelihood of a mortgage inquiry in the first quarter

after the last medical collection tradeline has been removed. This is a more than a 20% increase

over the pre-removal baseline likelihood of a mortgage inquiry.

Unlike in our other studied credit availability measures, we find that the first increase in the

likelihood of a mortgage inquiry occurs in the last quarter in which the medical collection

tradeline is still reported. The association increases further in the first quarter after the tradeline

is removed, but is not persistent, and returns to its initial level within three quarters. This

relationship is consistent with a hypothesis that individuals may work to remove collections

from their credit reports or otherwise improve their credit score when they apply for a mortgage.

The medical collection reporting reform removes this burden from potential homeowners whose

medical collections are under $500.

Our findings explore how the reporting change may impact the millions of individuals who have

medical collections under $500 removed from their credit reports. The medical collection

reporting reforms are likely to have important effects for consumers, as well as for a well-

functioning consumer reporting system, with our results suggesting that affected individuals

may experience increases in their credit scores within the next three months. The remainder of

this data point first describes some of the causes of medical collection removals from credit

reports. We then provide our empirical approach, data, and results in more detail.

The CFPB’s credit report data originates from one of the three nationwide consumer reporting agencies,

but lenders can pull credit reports from any consumer reporting agency. Our data do not include inquires

made to other consumer reporting agencies. Given this limitation and the importance of credit scores in

mortgage price setting, we focus on inquiries for first-lien mortgages, as mortgage lenders generally pull

credit reports from each of the three nationwide consumer reporting agencies rather than just one. See

DeNicola, Louis, “Which Credit Score do Mortgage Lenders Use?” February 2021,

https://www.experian.com/blogs/ask-experian/which-credit-scores-do-mortgage-lenders-use/

Consumer Financial Protection Bureau, “How does my credit score affect my ability to get a mortgage

loan?” September 2020, https://www.consumerfinance.gov/ask-cfpb/how-does-my-credit-score-affect-

my-ability-to-get-a-mortgage-loan-en-319/.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 6

3. Medical collection removals

The reasons for the removal of any information from a consumer’s credit report are varied and

not listed in the credit report. Medical collections are rarely visible on a report for the full seven

years that the Fair Credit Reporting Act permits, even though few are ever marked as paid. Less

than twenty percent of unpaid medical collections remain on consumer credit reports for longer

than four years.

The lack of persistence of the accounts on reports may be partially driven by a

failure of collectors to continue furnishing updated information. Additionally, the consumer

reporting companies have a requirement that medical collections should be removed from credit

reports after six months without updated furnishing, implemented in September 2017.

Another factor contributing to the lack of persistence may be consumer disputes of medical

collections. Medical collections are often reported by third-party collection companies who may

not be easily able to verify the legitimacy of the debt.

Individual experiences differ across a

large number of small furnishers, as the top four medical collection furnishers reported only

14.7 percent of the medical collections that were reported in the first quarter of 2022.

The Fair

Debt Collection Practices Act requires debt collection furnishers to investigate disputes and

provide individuals with verification of the debt.

If debt collection furnishers find that the

disputed debt is inaccurate or cannot be verified in response to a consumer dispute, the

furnisher is required to request that the consumer reporting company delete or modify the

furnished information about the debt. Additionally, there is some evidence that collection

Nathe, Lucas and Ryan Sandler, “Paid and Low-Balance Medical Collections on Consumer Credit

Reports,” Consumer Financial Protection Bureau Consumer Credit Trends, July 2022,

https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-balance-medical-

collections-on-consumer-credit-reports.

Andrews, Michelle, “Credit Agencies to Ease Up on Medical Debt Reporting,” National Public Radio,

July 2017, https://www.npr.org/sections/health-shots/2017/07/11/536501809/credit-agencies-to-ease-

up-on-medical-debt-reporting; Nathe, Lucas and Ryan Sandler, “Paid and Low-Balance Medical

Collections on Consumer Credit Reports,” Consumer Financial Protection Bureau Consumer Credit

Trends, July 2022, https://www.consumerfinance.gov/data-research/research-reports/paid-and-low-

balance-medical-collections-on-consumer-credit-reports/.

Consumer Financial Protection Bureau, “Medical Debt Buren in the United States”, February 2022,

https://files.consumerfinance.gov/f/documents/cfpb_medical-debt-burden-in-the-united-

states_report_2022-03.pdf.

Consumer Financial Protection Bureau, “Market Snapshot: An Update on Third-Party Debt Collections

Tradelines Reporting,” February 2023, https://files.consumerfinance.gov/f/documents/cfpb_market-

snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf.

Consumer Financial Protection Bureau, “What is a debt collection validation notice?” November 2021,

https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-collection-validation-notice-en-2109/.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 7

companies will stop furnishing collections if they are paid in a process known as “pay-for-delete”

or will settle for payments lower than the amount of debt.

Furthermore, we observe instances of the same medical collection disappearing and reappearing

on a consumer’s credit report as it is sold between debt buyers. For the purposes of this report,

we assume that a collection arises from the same debt as a previously reported collection if it is

for the same dollar amount and if the date it was opened is after the most recent update of the

earlier collection’s balance amount.

Carrns, Ann, "Consumer Agency Weighs Ban on Medical Debts in Credit Reports”, New York Times,

March 2022, https://www.nytimes.com/2022/03/04/business/credit-report-medical-debt-ban.html ;

Consumer Financial Protection Bureau, “Market Snapshot: An Update on Third-Party Debt Collections

Tradeline Reporting,” February 2023, https://files.consumerfinance.gov/f/documents/cfpb_market-

snapshot-third-party-debt-collections-tradelines-reporting_2023-02.pdf

It is also common for telecom debts to be sold between debt collection companies. In previous CFPB

research, a new telecom collection was assigned as arising from a previous collection if the new collectio

appeared on the consumer’s credit report within 18

months of a preexisting collection and had a balance

within ten percent of the preexisting collection’s balance. We may be over-counting the number of new

medical collections by having stricter requirements to match collections over time. However, the event

study analysis focuses on the removal of a consumer’s

last medical collection with no restrictions on the

length of time the collection was previously furnished, so using alternative mechanisms for linking debts

over time will not affect the main analysis. See Bucks, Brian, Susan Singer, and Nicholas Tremper,

“Quarterly Consumer Credit Trends: Collection of Telecommunication Debt”, Consumer Financial

Protection Bureau, 2018, https://files.consumerfinance.gov/f/documents/bcfp_consumer-credit-

trends_collection-telecommunications-debt_082018.pdf.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 8

4. Empirical approach

Our data do not allow us to see what causes the removal of a given medical collection. This limits

our ability to estimate the causal effects of the removal, as there may be unobserved factors

driving both medical collection removals and credit availability. Instead, we use event study

analysis to investigate how the removal of medical collections is associated with each of the

credit measures we consider. Event study graphs show how an outcome changes over time

relative to a baseline period, usually chosen as the period right before the event of interest. Our

baseline period is the quarter with the last furnishing of the individual’s final medical

collection(s). The association between our studied credit measures and an individual’s last

medical collection removal is measured relative to this baseline for five quarters prior to its final

report, and for six quarters after.

Event study analysis provides important evidence on whether there are trends in the outcome

variable before the event occurs. Finding such a trend may imply that an unobserved variable is

correlated with the event of interest and changes in the outcome variable may not be directly

related to the studied event. Event study graphs show how associations change over time, rather

than showing the average association taken over all quarters after the event, as in standard

regression analysis. For example, if people are not aware of how the removal of medical

collections from their credit reports affects their credit scores, it may take several quarters for

them to realize their credit score has improved, which may delay any corresponding increase in

their demand for credit. Our analysis provides more insight into these response patterns than

simple regression would provide in this context.

Though event study figures are useful for studying trends over time, they usually require that

individuals only experience the relevant event once during the study period. However, nearly

two-thirds of individuals with at least one medical collection in the CFPB’s Consumer Credit

Panel (CCP) have multiple medical collections, and because most of these collections are

removed in different quarters, many people experience multiple removals. If we included all

collection removals in the sample, many people would have collection removals before and after

the baseline quarter, which would complicate our interpretation and add bias and noise to our

measurement of what happens after removal.

Because of these issues that arise when

individuals experience multiple events during the study period, we only consider the last

Sandler, Danielle and Ryan Sandler. 2014. “Multiple Event Studies in Public Finance and Labor

Economics: A Simulation Study with Applications,” Journal of Economic and Social Measurement 39(1):

31-57.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 9

medical collection removal for each person, such that no medical collections are reported after

the last removal. Our results are most indicative of the potential effects for the approximately

one-half of individuals with medical collections who will have all their medical collections

removed under the reporting change.

Our dataset includes one observation per quarter for each individual. We create eleven binary

variables for each of the five quarters preceding the baseline quarter (i.e., the quarter of the last

medical collection tradeline) and the six quarters following the baseline quarter. For example,

consider a person whose last reported medical collection appears on their credit report for the

final time in June 2016. The event study regression includes, as independent variables, binary

variables for each of the five quarters before the final furnishing (March 2015 through March

2016) and each of the six quarters after the final furnishing (September 2016 through December

2017), leaving out June 2016 because our baseline is the last quarter in which a medical

collection is reported. The binary variables are included as relative to the removal period, which

can happen at any time during the study period. Rather than having a binary variable for all

March 2016 observations, for example, we include a binary variable for all observations that are

one quarter before each person’s last medical collection tradeline is reported for the last time.

The event study figures show the average difference in the specified outcome between the

baseline quarter in which the last medical collection furnishing occurs, and each of the five

quarters before the final report and each of the six quarters after the final report. The

regressions also include person-specific and time-specific effects which control for differences in

the dependent variables across individuals and quarters. We cluster standard errors by person

to account for autocorrelation in individuals’ outcomes.

A more technical explanation can be found in Conkling, Thomas and Nicholas Tremper, “Data Point:

Final Student Loan Payments and Broader Household Borrowing,” Consumer Financial Protection

Bureau, June 2018, https://files.consumerfinance.gov/f/documents/bcfp_data-point_final-student-loan-

payments-household-borrowing.pdf.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 10

5. Data

We analyze data from the CFPB’s CCP, a 1-in-48 deidentified sample of credit reports from one

of the three nationwide consumer reporting agencies. Once someone is added to the sample,

their quarterly credit records are included for the duration of their credit history. The panel

dataset includes all credit report tradelines, a commercially available credit score, and consumer

credit inquiries. The tradelines provide information on current credit accounts as well as

accounts that have gone into collections. A medical collection is defined as a debt collection

tradeline whose original creditor is coded as a medical entity.

Our sample includes quarterly credit reports with a medical collection removal between June

2012 and December 2020. We discard from the sample medical collections that were marked as

paid because these collections were removed from credit reports beginning in July 2022.

After

including five pre-removal and six post-removal quarters, the sample includes quarters from

March 2011 through June 2022.

The sample requirements limit the generalizability of our findings to the entire sample of

medical collection removals; however, they allow us to focus on a sample that is more like the

consumers who will be affected by the reporting change. Only 35 percent of removals in the full

sample of medical collections were for medical collections under $500, but in the event study

sample, 68 percent of removals are for collections under $500. Though we cannot, for

econometric and data limitations, estimate the exact effect of the reporting change on consumer

credit, our strategy provides some suggestive evidence of how similar medical collection

removals have affected individuals.

In the event study sample, the average total dollar amount of removed medical collections is

$752 and the average number of removed collections is 1.30.

The median total dollar amount

of removed collections is $282 and the median number of removed collections is one, showing

the long right tail in the distribution of medical collections across consumers. Approximately 94

percent of consumers in the event study sample have at least one revolving credit tradeline

during the three-year sample, and 93 percent have at least one installment credit tradeline.

We include the five observations for a consumer before each medical collection’s last furnishing as well

as the six observations after the last furnishing. We focus on these twelve quarters because this event

horizon is long enough to study immediate and longer-term effects while also minimizing sample

attrition.

Note that because multiple tradelines can be removed at once, a consumer can have a total amount of

removed collections above $500, but each collection may be less than $500 and thus the consumer would

have all their collections removed under the reporting change.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 11

Nearly 29 percent of consumers in the sample have a first-lien mortgage inquiry in at least one

of their twelve quarters in the sample.

The event study sample includes each person’s last medical collections that are ever reported on

their credit report. In the full sample, which includes all quarters in which at least one medical

collection tradeline was furnished for the last time, the average consumer has $1,328 in medical

collections across 1.72 tradelines. Therefore, the event study sample includes fewer collections

and lower dollar amount totals per medical collection removal. It also includes slightly less than

one-quarter of consumers with medical collections, which can be explained by our sample

restrictions. First, we require that consumers have their last medical collection reported in or

before December 2020, so we can include six quarters after the removal with no medical

collections in our event studies. This reduces the initial sample of consumers with medical

collections by more than 40 percent. The remaining sample reduction is caused by requiring

that consumers have their credit score and at least one tradeline reported in every quarter

included in the sample.

We do not exclude medical collections over $500 from the main

sample, and instead provide a separate analysis for the association with credit score by the size

of medical collections.

Appendix A provides more details on how the event study sample differs from the sample of all medical

collections.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 12

6. Results

6.1 Medical collection removals and credit

score

In this section, we explore the association of the removal of the final medical collection from a

consumer’s credit report with credit scores using event study analysis.

FIGURE 1: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND CREDIT SCORES

First, we consider how individuals’ credit scores change during the five quarters before their last

medical collection report.

Figure 1 shows that average credit scores do not change much over

this time conditional on our controls for quarter- and person-specific averages, which we

include in every event study regression. Scores begin sloping upward in the first quarter after

Each estimated coefficient in Figure 1 (and in all the figures in this data point, unless noted otherwise)

shows the average difference in credit score between the associated quarter on the x-axis and the quarter

of the last medical collection tradeline (quarter zero). The event study graph includes individual and

quarter fixed effects, and standard errors are clustered by individual. Ninety-five percent confidence

intervals are plotted but contained within the dots (and thus difficult to see) because of the precision of

our estimates. The sample includes all “final quarters of the last medical collection tradeline(s)” as

described in

Columns 5 and 6 of Appendix A.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 13

the last report, with a person’s credit score increasing by approximately 25 points in the first

quarter after all their medical collections are removed. Credit scores continue to slope upward

for six quarters until they have increased by nearly 33 points from their pre-removal level.

This relatively large average increase in credit scores may indicate meaningful improvements in

the mortgage terms available to people, as well as potentially improving access to other

consumer financial products. However, the estimates reported above are averages over all

individuals’ final medical collection tradeline removals, and these estimates may vary in

important ways for different groups.

In the next several figures, we create the same event study graph for several subsamples to learn

about the features of medical collection removals that have the largest associations with credit

scores. These sources of heterogeneity provide some suggestive evidence for who may be most

affected by the removal of medical collections under $500 from credit reports.

FIGURE 2: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND CREDIT SCORES, SEPARATELY BY

DOLLAR AMOUNT OF COLLECTIONS REMOVED

Because the change in reporting policy will only remove medical collections under $500, we first

consider results separately by whether the removed collections were each for amounts under

$500, or if at least one had a balance over $500. Figure 2 shows that individuals with at least

one medical collection over $500 have a larger associated increase in their credit score, with an

average change of nearly 32 points in the first quarter after the removal, compared to 21 points

for individuals without any medical collections over $500. This suggests that, in our model and

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 14

given our controls, removing larger medical collections is correlated with larger score changes.

Individuals with smaller medical collections also have higher credit scores before their final

medical collection is removed, with an average score of 624 for individuals with all their

collections under $500 compared to 604 for individuals with at least one collection over $500.

Credit scores are bounded by minimum and maximum values, so people with higher credit

scores have less margin for improvement. This may contribute to the smaller average change for

individuals with medical collections under $500.

Figure 1 shows that average credit scores in the five quarters before a removal are persistently a

few points higher than the average credit score in the quarter of the last medical collection

report. This is surprising because the last medical collection tradeline is not expected to be

associated with other negative financial outcomes that would affect credit score. However, 32

percent of individuals in the sample have their medical collection furnished for only one quarter.

These individuals may have much higher credit scores before the quarter of the last medical

collection report than for those whose collection has been furnished for more than one quarter.

FIGURE 3: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND CREDIT SCORES, SEPARATELY BY

TIME FURNISHED

For the subset of consumers whose medical collection(s) is reported for more than one quarter, the

average length of time furnished is nine quarters, and the median is seven.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 15

Figure 3 presents the estimated average changes from our event study analysis separately by

whether the medical collection was furnished for one quarter or for more than one quarter.

Individuals whose collection was only furnished for one quarter have credit scores that are

approximately ten points higher on average in the five quarters before the quarter of the last

medical collection report than for individuals who experienced longer furnishing periods. The

average difference in credit score after the last medical collection report is only two points larger

for individuals whose medical collection was furnished for one quarter, suggesting that the

length of time the medical collection appeared on a consumer’s credit report has only a small

association with credit score after its removal.

The baseline quarter in our event study analysis (quarter zero) is defined as the quarter of the

person’s last medical collection report; however, some people have multiple collections removed

in this quarter, while others have only one. We investigate if individuals who have multiple

medical collections removed from their credit reports have similar associated average changes in

credit scores as individuals who only have one medical collection removed.

FIGURE 4: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND CREDIT SCORES, SEPARATELY BY

THE NUMBER OF REMOVED MEDICAL COLLECTIONS

Figure 4 provides the estimated average changes in credit score from the event study analysis,

separately by whether the person had one or multiple medical collections removed in the

quarter of their last medical collection report. The estimated average changes are very similar

before the last report but then diverge. Individuals with one medical collection removed have an

associated average increase in credit score of 24 points while individuals with more than one

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 16

medical collection removed have an average increase of 30 points. The average changes for both

groups continue to increase for the six quarters after the last medical collection(s), suggesting

that the reporting change may have larger effects on credit scores for people who have multiple

medical collections removed from their credit reports.

Our event study analyses use the final medical collection report on a consumer’s credit report as

their baseline period, such that no medical collections are furnished on their future credit

reports. This removal may be less impactful if other collections remain on the consumer’s credit

report, as is true for 31 percent of individuals in the event study sample. Figure 5 estimates the

event study regression separately by whether there are non-medical collections on the

consumer’s credit report in the first quarter without the medical collection report. We find an

average increase in credit score of nearly 33 points for individuals without other non-medical

collections, compared to eight points for individuals with non-medical collections. The average

change for individuals with other types of collections grows to 24 points after six quarters. This

difference suggests that the effect of the reporting change will be largest for people who have no

non-medical collections remaining on their credit report.

FIGURE 5: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND CREDIT SCORES, SEPARATELY BY

PRESENCE OF OTHER COLLECTIONS

The event study analysis shown in Figure 5 investigated the average change in credit score after

the final medical collection that appears on a consumer’s credit report is removed during our

sample. We estimate that the reporting change will remove all medical collections for only half

of individuals with medical collections on their credit report. Given that Figure 5 shows smaller

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 17

average changes in credit score for consumers with non-medical collections that remain on their

credit reports after the medical collection is removed, we may expect smaller average changes

for individuals with future medical collections as well.

As a final variation on the main event study analysis, Figure 6 considers the removal of the

second-to-last medical collection that is ever reported on a consumer’s credit report.

The

average associated improvement in credit score is nearly 15 points in the first quarter after the

medical collection’s removal and increases to 27 points after six quarters. Though the average

change in the first quarter is ten points smaller than for the final medical collection removal, the

average change is only six points smaller after six quarters. The steeper slope in the relationship

between the length of time after the second-to-last medical collection removal and credit score

may be partially driven by the removal of the last medical collection during the six quarters after

the second-to-last removal for some individuals in the sample.

FIGURE 6: SECOND-TO-LAST MEDICAL COLLECTION TRADELINE REMOVALS AND CREDIT SCORES

The sample includes all individuals who had at least two quarters in which a medical collection

tradeline was removed from their credit report, whose second-to-last medical collection tradeline removal

occurred between June 2012 and December 2020, and who have non-missing credit score and at least one

reported tradeline in each of the twelve event study quarters. The last medical collection tradeline removal

can occur in the six post-removal quarters that we included in the event study figures or in later quarters.

The model is otherwise specified as for Figure 1.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 18

6.2 Medical collection removals and credit

availability

The previous section showed that medical collection removals are associated with relatively

large average changes in credit score, with changes in the first quarter after the last medical

collection report ranging between eight and 32 points, depending on the subsample. We next

ask if the removal of individuals’ last medical collection(s) is associated with other important

measures of credit availability: aggregated credit limits across revolving accounts and

aggregated loan principal amounts across installment accounts.

FIGURE 7: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND REVOLVING CREDIT

Figure 7 shows the results of the event study analysis for revolving credit, measured as the sum

of all credit limits in revolving credit accounts.

The average change is near zero in the first

quarter after the last medical collection report but grows until it reaches a $1,028 average

increase in revolving credit after six quarters. This is approximately three percent of the average

baseline amount of revolving credit ($32,397) and is more than ten percent of the median

baseline amount ($9,700). We may have expected an upward trend in revolving credit both

before and after the medical collection removal, as individuals’ financial wellbeing tends to

Each point of the event study graph provides the average difference in the amount of revolving credit

between the associated quarter on the x-axis and the quarter of the last medical collection tradeline

(quarter zero). The model is otherwise specified as for Figure 1.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 19

increase on average with age, and thus so too may the amount of credit they have available to

them.

However, we only find a persistent upward trend in revolving credit after the medical

collection removal, suggesting that this trend is not caused by age-related increases in credit

provision. The gradual increase may instead be explained by the infrequency of applications for

new lines of revolving credit or higher credit limits. People may not reap the benefits of their

higher credit score immediately if they do not apply for additional credit in every quarter, and so

the relationship between the medical collection removal and revolving credit may take several

quarters to develop as additional individuals apply for new lines of credit in each quarter.

FIGURE 8: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND INSTALLMENT CREDIT

Figure 8 finds a similar pattern for installment credit.

A person’s installment credit is

measured as the sum of all the loan principal amounts across their installment accounts, which

includes their mortgages, auto loans, student loans, and personal loans. The average change is

slightly negative but near zero in the first quarter after the last medical collection tradeline is

reported, and then begins to increase, reaching $4,123 of additional installment credit after six

quarters. This is a slightly smaller increase than for revolving credit when considered as a

percentage of baseline values: approximately three percent of mean baseline installment credit

Consumer Financial Protection Bureau, “Financial well-being in America”, September 2017,

https://files.consumerfinance.gov/f/documents/201709_cfpb_financial-well-being-in-America.pdf

Each point of the event study graph provides the average difference in the amount of installment credit

between the associated quarter on the x-axis and the quarter of the last medical collection tradeline

(quarter zero). The model is otherwise specified as for Figure 1.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 20

($147,041) and seven percent of the median ($58,985). As in Figure 7, the average changes

before the last medical collection report are very similar to each other. This suggests that the

upward trend after the last medical collection report is not driven by general improvements in

financial wellbeing that occur over time for many people, and the lack of an immediate effect

again may be caused by the infrequency with which individuals apply for a new line of

installment credit.

The results in Figures 7 and 8 may be driven by lenders, if they are willing to provide more

credit to individuals who do not have medical collections on their credit reports, or by

consumers, if they are more likely to apply for larger loans or higher credit limits after their

medical collection tradelines are removed from their credit reports, or by both. The second

mechanism may be especially relevant in our context because consumer disputes can lead to the

removal of medical collection accounts if the disputed information is not verified. Individuals

may have an increased inclination to dispute medical collections when they plan to apply for

additional credit so they can improve their credit score and receive better credit terms.

Therefore, increases in demand for credit may in fact be the cause of a medical collection

removal, rather than a result of it.

In our final event study, we consider the extent to which these increases in revolving and

installment credit are driven by increased consumer demand and provide suggestive evidence

that some individuals try to remove medical collections from their credit reports when they plan

to apply for a first-lien mortgage. Figure 9 shows the results from the event study analysis for

the average changes in the likelihood of a first-lien mortgage inquiry relative to each person’s

last medical collection removal.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 21

FIGURE 9: FINAL MEDICAL COLLECTION TRADELINE REMOVALS AND INQUIRIES FOR FIRST-LIEN

MORTGAGES

Unlike in the previous figures, the average changes in the five quarters before the final medical

collection report are significantly different from the average change in the quarter of the final

report, with a 0.5 percent smaller likelihood of having any mortgage inquiry. The average

difference grows to nearly one percent in the first quarter after the final medical collection

report and then falls to zero within three quarters, whereas in the other considered credit

outcomes the average changes continue to increase for the duration of the sample. The one

percentage point increase reflects a more than 20 percent increase in the baseline share of

individuals with mortgage inquiries (4.7 percent).

Though the average change for mortgage inquiries appears to immediately follow the removal of

a last medical collection tradeline from a person’s credit report, the figures for revolving and

installment credit show much more gradual changes. Applications for revolving credit and other

forms of installment credit may not exhibit the same immediacy as applications for first-lien

mortgages, perhaps because their pricing is not as sensitive to credit score, or in the case of

other installment credit, because they are usually for smaller principals. We focus on mortgage

inquiries because our data includes a much larger share of them than inquiries for other credit

products, and because of the importance of credit score in price-setting for mortgages.

Additionally, some mortgage inquiries do not lead to an originated loan and therefore do not

lead to an increase in installment credit. Finally, the association is large relative to the baseline

rate of mortgage inquiries, but small in absolute terms: a one percentage point increase in the

likelihood of a mortgage inquiry would not lead to a dramatic increase in the amount of

installment credit, on average.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 22

The results of the event study suggest that some individuals have higher demand for mortgages

in the first quarter after their final medical collection is removed from their credit report.

However, if this increase in demand was the result of the medical collection tradeline removal

(and its associated higher credit scores) alone, we would expect the increased demand to persist

for the six quarters after the final report of the last medical collection tradeline, as do the

average changes for credit scores and available revolving and installment credit.

This different pattern is instead consistent with some individuals disputing or settling their

medical collection(s) when they plan to apply for a mortgage. The event study analysis shows

that the likelihood of a mortgage inquiry first jumps in the same quarter as the last medical

collection report. This is not reflective of any improvement in credit score, as the collection is

still on the consumer’s credit report. Instead, the relationship may flow in the opposite direction

than in the previous outcomes: individuals may make a mortgage inquiry, realize they have a

medical collection that may be lowering their credit score, and then work to remove the medical

collection before applying for a mortgage again in the subsequent quarter (after the collection

has been removed).

In this scenario, the person’s mortgage inquiry in a particular quarter

causes that quarter to become the last period in which the medical collection is furnished, rather

than the medical collection tradeline’s removal causing the mortgage inquiry. The effect may be

larger in the period after the medical collection tradeline is removed as individuals who applied

in the previous quarter re-apply for mortgages with an increased credit score following removal,

as well as an increase in applications from people who did not apply for a mortgage until the

medical collection was removed. The effect may not be persistent over time because individuals

who act to remove a medical collection from their credit report do so because they plan to apply

for a mortgage now, rather than waiting several quarters.

This event study analysis is suggestive that some people may have some ability to remove

medical collections from their credit reports. However, this process is burdensome, often

requiring several phone calls with debt collectors, sending certified letters to dispute the debt,

and collecting records of care received from healthcare providers and amounts paid by

insurers.

Furthermore, individuals are far from guaranteed success when they dispute or try to

settle their medical collections, and many end the process without any change to their credit

Only 1.3 percent of consumers have mortgage inquiries in both the quarter of their last medical

collection report and in the first quarter after the medical collection’s removal. An additional 4.4 percent

have mortgage inquiries in only the first quarter after the medical collection’s removal.

Gill, Lisa L. “How to Fight Back When Contacted by a Debt Collector for a Medical Bill,” Consumer

Reports, August 2022, https://www.consumerreports.org/money/debt-collection/fight-when-contacted-

by-a-debt-collector-for-medical-bill-a8932597676/

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 23

reports. Others may not know that disputing a medical collection is an option, and they may feel

pressure to pay a debt they believe they do not owe before they apply for a mortgage.

Medical collections may soon not be considered at all in many mortgage lending determinations,

even if medical collections over $500 remain on consumer credit reports. The Federal Housing

Finance Agency’s (FHFA) has left medical collections out of its underwriting processes for

several years; both Fannie Mae and Freddie Mac require lenders seeking their backing not to

consider medical collections in their assessments of repayment risk.

The FHFA has further

announced that it will implement FICO 10T and VantageScore 4.0 as the credit scores that

Fannie Mae and Freddie Mac will use as thresholds for screening in loans.

These credit scores

underweight or do not include medical collections, unlike the credit score models that FHFA-

backed loans have historically used for screening-in decisions.

This change will further reduce

the pressure on individuals to work to remove medical collections from their credit reports when

they plan to apply for a mortgage, and demonstrates the growing de-emphasis on the use of

medical collections in assessing repayment risk across the credit market.

Fannie Mae, “Selling Guide,” March 2023, https://selling-guide.fanniemae.com/Selling-

Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-2-Desktop-

Underwriter-DU-/1032994121/B3-2-03-Risk-Factors-Evaluated-by-DU-02-01-

2023.htm#Risk.20Factors.20Evaluated.20by.20DU ; Freddie Mac, “Bulletin 2017-2: Selling,” March

2017, https://guide.freddiemac.com/app/guide/bulletin/2017-2

Federal Housing Finance Agency, “FHFA Announces Validation of FICO 10T and VantageScore 4.0 for

Use by Fannie Mae and Freddie Mac,” October 2022,

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Validation-of-FICO10T-and-

Vantage-Score4-for-FNM-FRE.aspx

The White House, “Fact Sheet: New Data Show 8.2 Million Fewer Americans Struggling with Medical

Debt Under the Biden-Harris Administration,” February 2023, https://www.whitehouse.gov/briefing-

room/statements-releases/2023/02/14/fact-sheet-new-data-show-8-2-million-fewer-americans-

struggling-with-medical-debt-under-the-biden-harris-administration/

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 24

7. Conclusion

We predict that, for approximately one half of consumers who currently have reported medical

collections, the removal of medical collections under $500 from credit reports will remove all

the medical collections on their credit reports. This data point provides descriptive evidence of

how medical collection removals between 2012-2020 have been associated with changes in

consumer credit.

Because medical collections are not removed from credit reports randomly, the event study

analysis does not provide causal evidence. However, we show that individuals who have all their

medical collections removed from their credit reports see increases in one of the commercially

available credit scores of 25 points on average, with slightly smaller increases for individuals

whose removed collections are under $500. People also experience increases in the amount of

credit available to them in installment and revolving accounts, and in the likelihood of a

mortgage inquiry, though the latter association may be better evidence of individual action to

remove medical collections from their credit reports when they plan to apply for mortgages. We

interpret our findings as suggestive evidence that the reporting change may increase credit

scores and the availability of revolving and installment credit for people with medical collections

under $500.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 25

Count of

unique

medical

collections

per

consumer

Total dollar

amount of

all unique

medical

collections

per

consumer

Count of

unique

medical

collections

per final

quarter of

medical

collection

tradeline

Total dollar

amount of

all unique

medical

collections

per final

quarter of

medical

collection

tradeline

Count of

unique

medical

collections

per final

quarter of

last medical

collection

tradeline

Total dollar

amount of

all unique

medical

collections

per final

quarter of

last medical

collection

tradeline

Mean

6.78

$5,216 1.72 $1,328

1.30 $752

Median 3

$1,189 1 $472 1 $282

Collections (#) 17,368,280

17,368,280 17,368,280

17,368,280

783,304

Consumers

affected (#)

2,562,576

2,562,576 2,562,576

2,562,576

603,207

APPENDIX A: SUMMARY STATISTICS ON MEDICAL

COLLECTION REMOVAL

Columns 1-4 include all medical collections for all consumers with medical collections reported

during the sample. Columns 1 and 2 provide consumer-level data while columns 3 and 4 provide

quarter-level data, where the quarter-level data describes the medical collection(s) in the last

quarter in which it is reported. Consumers can have multiple “final quarters” if they have

multiple medical collections which are removed in different quarters. Columns 5 and 6 include

the event study sample, consisting of all “final quarters of last medical collection tradeline”, i.e.,

the final medical collection on a consumer’s credit report such that they have no medical

collections reported on future credit reports. The final quarter of the last medical collection

report must occur between June 2012 and December 2020 so we can include five quarters of

pre-removal and six quarters of post-removal effects. Consumers must have non-missing credit

score and at least one reported tradeline in each of the twelve sample quarters.

CONSUMER CREDIT AND THE REMOVAL OF MEDICAL COLLECTIONS FROM CREDIT REPORTS 26