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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.
  • 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. 
  • 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.

No doubt all this may cause some inconvenience, but it is better than another blow to your credit scores.

Can You Boost Your Credit Score By Paying Your Rent On Time

The apparent “American Dream” of owning a home is changing.   For many people, renting not only suits their need for flexibility but it is also an economic necessity due to soaring student loan debt and rising prices.

Credit History and Rent Payments

Credit history plays a vital role in your life and it is necessary for accessing bank loans, credit cards, mortgages, and auto loans. About 45 million people in the US who have a solid track record of paying rent on time (which constitutes 35% of their income) lack a credit score.  A pilot program in New York found that credit scores of 76% of renters can be raised by tracking on-time rental payments.  

Rent is one of the largest monthly payment that you make. All these timely payments should count for something right? So does it mean that your rent payments can affect your credit score? The simple answer is not necessarily. The track record of on-time payments does not reflect on your credit history but fortunately, the situation is changing for the better and timely payments can boost your credit score. Several criteria need to be satisfied before you reap the benefits.

How Can You Get Your Rental History on Your Reports

If you are currently renting or intend renting, it is important to understand that a consumer cannot report his rental payments to a credit bureau. Here are some tips that will help you as to how you can go about getting your rental payments on your credit reports.

1. Many landlords began sharing rental data to credit bureaus after 2011 when they began to include rental history to credit reports and credit scores. Some landlords also offer online systems that report rental payments. However, it is not a universal practice for landlords to “automatically” report rental data. So you should, first of all, ask your landlord or property manager if they report rental payments to the credit bureaus or not. As your rental payments will affect your credit score if your credit report does not reflect your payment history.

2. If you rent from property management or individual landlord who does not report data, you should pay your rent through a rental payment service. Some of the popular renting services are Rent Reporters, RentTrack, Experian RentBureau, Rental Karma, ClearNow and PayYourRent. All these do not report rental payments to all three bureaus. While RentReporters and RentTrack report to all three bureaus, PayYour Rent reports to Experian and TransUnion, ClearNow reports to Experian and Rental Karma reports to TransUnion. It is to be noted that the above does not include all the rent reporting services. Some of these services do not charge any fees whatsoever but there are others that charge you as much as $100 or more for their services.

3. Each consumer can have a number of credit scores depending on the formula and scoring model. Some of these may include rent payments in their reports while others may not. So when you apply for credit you do not know which credit bureau ( TransUnion, Equifax or Experian) report or which score the lender is likely to use.

4. Finally, you should keep in mind that while calculating your credit scores only the newest credit scores consider rental data. FICO 9 and FICO XD do use rental data to calculate scores whereas the most commonly used versions of FICO® Score do not do so.

Vantage Score is a more popular credit scoring option with lenders as it has been reporting utilities and rental payments for many years now. According to VantageScore “By adding rental payments to credit reports more than 30 million consumers who do not have a credit history will be able to have a credit score and they will be able to borrow.”

 How Will This Impact Your Score?

It is difficult to say how much reporting credit bureaus will affect your credit scores as it depends on your current credit history. However, there are some interesting studies on the subject.

1. An Experian study showed that 100% of tenants who did not have a credit score before had a credit score after reporting rent, and almost three-fourths of the people who were studied experienced a credit score increase. 

2. A study by TransUnion showed that eight out of ten subprime borrowers had an increase in their VantageScore after only one month of reporting rent payments.

3. Lastly, a study from RentTrack found that reporting rent payments for 6 months increased their VantageScore by about 9 points and the average increase for those with a credit score below 650 was 29 points.   

Using Your Credit Card to Pay Your Rent

You can indirectly boost your credit score by using your credit card to pay your rent. (that is if  your landlord accepts credit card as a payment mode) . If you pay your credit card balance in time it will help you boost your credit score. But you should be aware that some landlords may charge you a processing fee if you use your credit card for paying rent.

TO KNOW MORE ABOUT YOUR CREDIT REPORTS AND CREDIT SCORE  CONTACT  US AT (800) 400-ZINU(9468)