The Consumer Financial Protection Bureau said the changes would affect $49bn in medical debt from credit reports.
Consumers in the United States will no longer have medical debt appear on their credit reports under changes that will make it easier for millions of Americans to get credit.
The new law means lenders will be prohibited from using medical information in their lending decisions, the Consumer Financial Protection Bureau (CFPB) said Tuesday.
In the change, about $49bn in medical debt will be removed from the credit reports of more than 15 million Americans, the CFPB said.
The consumer watchdog said its research showed that medical loans are less likely to be repaid, and it expects the change to result in the approval of about 22,000 home loans each year.
“People who get sick shouldn't have their financial future at stake,” CFPB Director Rohit Chopra said in a statement.
“The CFPB's final rule will close a unique loophole that has allowed debt collectors to abuse the credit reporting system to force people to pay debts they don't owe.”
US Vice President Kamala Harris said the law would “help more Americans save money, build wealth, and prosper”.
This comes less than two weeks after US President Joe Biden is expected to hand over the reins of the White House to US President-elect Donald Trump.
It's unclear whether the order, which takes 60 days to take effect, will remain in its current form under Trump, who has vowed to dismantle federal laws and roll back many of Biden's demands.
Several Republicans complained that the change would weaken the accuracy of credit reports.
The Consumer Data Industry Association and other trade groups representing financial institutions opposed the change, while the American Medical Association supported it.