Game Changer! New Rule Could Boost Mortgage Approvals by 20K Yearly!
Big news for all Americans! The Consumer Financial Protection Bureau (CFPB) has just rolled out a groundbreaking new rule that wipes medical debts off consumer credit reports for good!
What does this mean for you? On average, your credit score could jump up by about 20 points, opening the door for many more folks to secure that coveted mortgage approval for their dream home.
The CFPB found that medical debts don’t accurately predict a person’s ability to repay loans, and they often lead to inaccuracies and disputes that do more harm than good.
Under this new rule, medical bills can no longer be included in credit reports, and lenders are barred from using any medical information in their credit decisions.
Say Goodbye to Medical Debt on Your Credit Report
Specifically, this new regulation amends Regulation V, which means creditors can no longer consider medical debt when deciding if you qualify for credit.
The Fair Credit Reporting Act (FCRA) will now protect consumers by ensuring that medical information is not factored into loan underwriting.
And don’t forget the big three credit reporting agencies—Equifax, Experian, and TransUnion—won’t be able to share any details about medical debt with lenders. Previously, they had announced that medical collections under $500 would be removed, but now it’s all medical debts!
Furthermore, lenders can no longer use medical information in any capacity, such as requiring medical devices as collateral for loans.
The CFPB found that almost one-third (31.6%) of credit reports contained collections, with medical debts making up about half (52%) of those. That means nearly one in five consumers (19.5%) had a collection account tied to medical care.
In simple terms? You can expect to see far less—or perhaps even no—medical information on your credit report moving forward!
But Didn’t They Already Ignore Medical Collections?
Before this game-changing update, agencies like Fannie Mae, Freddie Mac, the FHA, and VA had already adjusted their guidelines to ignore medical collections and charge-offs in their assessments.
This meant that even if these debts appeared on your report, they wouldn’t affect your debt-to-income ratio or require you to pay them off before securing a loan. While that was a step in the right direction, the lingering presence of medical debts could still drag down credit scores.
For instance, a borrower might have seen their FICO score drop by 20 points or more due to medical debt, potentially pushing them into a higher pricing tier. Just imagine: a borrower with a score of 695 would face a 1.75% pricing hit, while someone with a score between 700-719 would incur just a 1.375% hit.
The cost difference could mean higher closing costs or increased mortgage rates for borrowers, and in some cases, it might even disqualify them from loan approval altogether.
22,000 More Mortgage Approvals Annually!
Thanks to this transformative new rule, the CFPB anticipates that around 22,000 more Americans will qualify for affordable mortgages every year!
No more struggling with medical debts as barriers to homeownership. With medical information removed, many borrowers can expect their credit scores to rise by an average of 20 points. For example, if a borrower had a 680 score before, they could easily surpass 700 now.
Previously, FICO and VantageScore still gave some weight to medical debt in their scoring models, even if the impact was lessened. But now, these debts are entirely off the table, meaning higher credit scores across the board!
Plus, borrowers will no longer need to provide a letter of explanation for past medical collections—a hassle that could jeopardize loan approvals.
With the new rule in play, expect more loans approved at lower mortgage rates that better reflect those higher credit scores.
Additionally, this shift will enhance privacy protections and reduce aggressive debt collection practices, meaning fewer headaches for consumers looking to finance their homes.
