Can Medical Debt Impact Your Credit Scores?

Are you worried that your medical bills will harm your credit score? The answer is that determining the impact of your medical bills on your credit report and credit scores is not a perfect science. It depends on an individual’s credit history which will be factored into the formula for determining one’s credit score.

Here we are going to examine how unpaid medical bills can impact your credit score. 

The Danger of Ignoring Medical Bills

You may maintain good health insurance and do everything you are supposed to do like choosing in-network doctors and hospitals. But, despite your best efforts your medical bills can still rack up quickly and affect your credit standing. And, if you are uninsured even a simple emergency visit can turn into an alarming amount of debt.

The myth that medical bills will automatically spell trouble for your credit reports and scores – is just a myth. Simply acquiring medical bills will not have any impact on your credit score. It is not the doctors and hospitals you visited that report your medical bills to the credit bureaus. Medical providers will usually turn over your unpaid bills to a debt collection agency after attempting to collect fees from you for a few months. The debt collector, in turn, reports it to the credit bureaus. So, it is only unpaid medical debt that can typically lead to credit problems as they can turn into collection accounts. They can even lead to potential court judgments if your debt collector decides to sue you for your outstanding medical bills and will stay on your credit report for seven years.  

Therefore, if you are overwhelmed with large medical bills that begin to arrive in your mailbox, you should not ignore them.   Ignoring them is a very big mistake as they can show up in your credit report. But, the degree of damage will depend on other score factors from your credit reports.

Medical Collections and Credit Scores

Many people believe that medical collections are not a big deal because no one would choose to get into medical-related debt. According to a survey a staggering 52% of collection accounts on credit reports are medical bills. It is estimated that 43 million consumers with a credit report have one or more medical accounts in collections.

 Credit scores are inclined to take the line of least resistance. That is to say, it is very easy for a good credit score to turn into a bad one than it is for a bad credit score to turn into an awful one. If your credit score is currently very good then the addition of a collection account or “just” a medical collection may potentially have a very damaging impact on your credit score. However, if you already have problems with derogatory information appearing on your credit reports then one more medical collection may not have a much additional negative impact on your credit scores.

New Regulations May Help

The older FICO scores were designed to treat medical collection bills like any other collection accounts. But, the good news is that after an agreement between the three credit bureaus (Experian, Equifax, and TransUnion) and a group of the state attorney general the FICO and VantageScore have released a new set of rules. These scoring models (FICO Version 9 and VantageScore 4.0) which have come into effect from June 2018 have made it harder for medical debt to kill your ability to borrow money. Collection agencies cannot report medical collections to the credit bureaus unless it is 180 days past due. Secondly, the new regulations also require collection agencies to remove from your reports any medical bills that are eventually paid by your insurance company. This is great news as the time frame of 180-days will give you time to make payments or payment arrangements with insurance companies and medical providers before it goes for collections. Secondly, it will help if a medical collection has been unfairly added to your credit reports when it should have been covered by your insurance plan. Matt Schulz industry analyst at Creditcards.com says, “It is a big deal as it builds time into the mess of getting insurance claims taken care of.”

Debunking the Myth

 No doubt, when these newer and better scoring models (FICO Version 9 and VantageScore 4.0) become more widely adopted a new medical collection will cause fewer credit score problems.

 Though, this special treatment of credit scores may make life a little easier for medical debts but, it is important to keep in mind that many lenders still use older versions of credit scores. So, it is likely that creditors would view a medical collection account negatively when applying for insurance, credit or loan as medical debt. 

Your goal should be to prevent your medical bills from being turned into collections or being reported to the credit bureaus. That may mean that you should:

  • Call the doctor and your insurance company monthly to check on the progress of any reviews that are delaying the payment of your medical bill. In some cases, you may need to pay the bill and then seek reimbursement from your health insurer.
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  • Negotiate with your health provider if you cannot afford to pay a medical bill and try to reduce the amount owed or set up a payment plan.
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  • Examine all the medical bills you receive carefully and compare it with the benefits provided by your health insurance provider. If you feel you have found an error you should contact your health insurance company and file a dispute with the three major credit bureaus.
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    No doubt all this may cause some inconvenience, but it is better than another blow to your credit scores.