When buying a home, your credit score is one of the single most important factors in determining your interest rate and your approval. In the past, medical debt weighing on a borrower’s credit score could be the deciding factor of whether they could qualify for a mortgage.
That has since changed for the better, bringing relief to millions of Americans. Here is how the 2025 rulings and updated credit reporting practices impact your journey to homeownership.
Quick Guide: How Medical Debt Affects Your Mortgage
| Debt Type | Shows on Credit Report? | Impact on Mortgage |
|---|---|---|
| Bills Under $500 | No | Zero Impact on Score |
| Paid Collections | No (removed usually within 14 days after being paid) | Boosts Score Once Removed |
| Unpaid Over $500 | Yes* | Can affect DTI and Score |
*Note: Under the 2025 CFPB rule, most medical debt is being phased out of lending decisions entirely
A Detailed Look at Medical Debt and Your Credit
If you pay your medical bills on time, you don’t need to worry. However, it is worth noting what happens if you have:
Unpaid Medical Bills Under $500
Unpaid medical collection accounts under $500 no longer show up on your credit report and do not impact your credit score. This protects borrowers from surprise small bills that used to tank scores right before a home closing.
Unpaid Medical Bills Over $500
Medical bills over $500 will appear on your credit report if your account is sold to collections and you don’t pay the bill within the 365 day grace period. A large collection can still technically lower your overall FICO score, which might affect your interest rate.
Paid Medical Collections
The best news for homebuyers is a policy created by the three credit bureaus, is that once you pay off a medical collection account, it will be removed from your credit report entirely. This usually results in an immediate positive impact on your credit score.
Important: The Hidden Impact of Medical Debt on Your Mortgage
Medical debt can still affect your mortgage application through your debt-to-income (DTI) ratio if it is over $500.
If you are on a monthly payment plan with a hospital or medical provider, that monthly payment is considered a reoccurring debt. When a lender calculates how much home you can afford, they must include those payments. A high monthly medical payment could potentially lower the total loan amount you qualify for.
Expert Tip: Avoid putting medical debt on a standard credit card or a “medical credit card” (like CareCredit) if you plan to buy a home soon. Once medical debt becomes “credit card debt” it loses all special protections mentioned above and will negatively impact your credit and DTI.
Steps to Take Before Applying for a Mortgage
- Check Your Reports: Visit annualcreditreport.com to ensure any medical debts under $500 or paid collections have been removed.
- Keep Records: Save your “Paid in Full” receipts from medical providers to prove a debt should be removed from your report.
