Medical Debt Can Impact Your Credit Score

by Gerri Detweiler,

Medical costs are on the rise, and insurance companies are refusing to foot the bills. Millions of people have chronic conditions or medical emergencies that lead to multiple office visits with different doctors, which makes it confusing to keep track of all the bills. Few Americans have the savings that it takes to cover these bills, leaving them with huge amounts of medical debt.

Just when you think medical debt can’t get any worse, it causes your credit score to drop. That’s right — unpaid medical bills can affect your credit scores. Typically, doctors and hospitals don’t report debts to credit bureaus. Rather, they turn their unpaid bills over to a debt collector and it is the collection agency that reports them. It’s no surprise that debt collection can cause your credit to take a huge hit. In fact, just one collection account can cause a good credit score to drop 50 to 100 points. Medical collections are no exception to this.

This huge hit won’t last forever and, unless there’s new negative information, your score should steadily improve over time. Collections, including medical debts, can remain on your credit report for seven years from the date of the original delinquency. This statute of limitations holds true for both paid and unpaid accounts (with few exceptions). Here’s how medical debt can impact your credit score.

Will a Medical Debt in Collections Really Hurt My Scores?

You have many different credit scores, not just one, and they can all be impacted in different ways. The newest version of the FICO score, FICO 9, ignores paid collection accounts, and medical collection accounts carry less weight under that model. On the other hand, the most widely used FICO model is FICO 8, which looks at any small collection account if the original balance is more than $100. This is good news for small medical bills, but not for most.

Meanwhile, the Vantage Score 4.0 distinguishes medical collections from other types of collection accounts, penalizing medical collections less than non-medical ones. It also ignores medical collections less than six months old.

Although some credit scores make life a bit easier for those with medical debts, many lenders still use older versions of credit scores that don’t give medical collections any special treatment. For that reason, assume that if you find a collection account on your credit report, creditors will likely view it negatively when applying for credit, insurance or loans.

Final verdict? Medical debt in collections can hurt your credit score, some scores more than others. The score can be worse if your lender is using older versions of credit scores. Medical debts don’t have to destroy you or your credit.

Here are few steps you can take to minimize the negative impact.

  1. Stay on Top of Your Medical Bills

Thanks to co-pays, deductibles and other insurance quirks, many medical debts go unpaid simply because a person doesn’t know they owe. Follow up with your healthcare provider or insurance company after doctor or hospital visits to see if you have a balance. Even if you have good health insurance, don’t assume everything will be taken care of.

A helpful tip is to add “Check balance!” to your calendar a week and a month after each medical appointment or surgery you have. This will help remind you to keep up with recent balances and pay them off as soon as possible. It’s also a good idea to keep an eye on your mailbox for any bills that come in, as well as the Explanation of Benefits from your insurance provider that usually tells you what you owe after they have paid.

On the plus side, you have more time before medical debt is reported to credit bureaus than you did a few years ago. The three major credit reporting agencies won’t report medical debt until 180 days until after it incurred, giving you more time to resolve medical bills with health care providers and insurance companies.

  1. Review Your Explanation of Benefits (EOB)

EOBs are statements from health insurance companies that detail what medical services and treatments have been paid for on their behalf. It also includes any balance you’re responsible for paying. Take the time to carefully read these and to contact the provider and your insurance company quickly if a bill is not being taken care of.

  1. Ask for an Itemized Bill

A bill that lists out what you’re being charged for is a lot easier to verify and understand than a lump sum. An itemized bill will help you verify that you’re being charged correctly and provide an opportunity for you to negotiate payment with the health care provider. If the balances don’t looks correct to you, you can always contact the provider or your insurance company to make sure they are correct before paying.

  1. Negotiate with Collectors

If you are contacted by a collection agency about a medical bill, ask them not to report it if you pay it right away. Some won’t report if the bill is resolved quickly. Also, ensure it’s really a bill you owe and not a scam.

Again, having a collection account updated as paid generally will not help your scores, unless a lender is using one of the newer credit score versions. So, if possible, aim for removal of the item from your credit report. This is usually referred to as a “pay for delete.” If a collection agency agrees to this, then make sure to get it in writing. Some agencies will work with you on this, others won’t. Remember, this is something that they don’t have to accept.

If you feel the situation is highly unfair — for example, you never received a copy of the bill — you can try two things. One is filing a complaint with the Consumer Financial Protection Bureau or your state Attorney General. The other is contacting the original provider and try to get them to pull the medical bill back from collections so you can pay them directly. If the provider does this, the account will usually be taken off your credit reports.

  1. Check the Accuracy

Call your doctor’s office to verify that a bill was sent to an insurance company. Ask your insurance company if certain costs were supposed to be covered and weren’t. Actively taking part in your insurance and bills can prevent expensive mistakes from happening and can prevent you from being left with bills you might not need to pay.

If a bill doesn’t seem right, check its validity. If you are contacted by a collection agency and you don’t believe you owe the bill, you have the right under the federal Fair Debt Collection Practices Act to ask the collection agency to validate the debt in writing within 30 days of receiving the notice that the account is in collections. You also have the right under the Fair Credit Reporting Act to dispute it with the credit reporting agencies (TransUnion, Equifax, and Experian).

  1. Work on a Payment Plan

If you know ahead of time that you won’t be able to pay a bill in full and on time, contact the medical provider and try to work out a payment plan. If the bill has not yet been handed over to collections, this is a great option. If the bill has already been given to collections, you can ask the medical provider to take the account back in exchange for payments.

A medical provider doesn’t have to agree to a payment plan however. If you owe a large sum of money for example and only pay $25 a month, the provider can still send you to collections. The payments have to be large enough to be acceptable to the provider, but you’ll want to make sure the payment fits into your budget, which can be tricky. Contrary to popular belief, it is not against the law for a provider to send you to collections if you’re making payments.

If you and your provider can agree on a monthly payment, then make sure to get the payment arrangement in writing. Having a paper trail is something that can be helpful in disputing collections.

Lastly, there are credit cards that can help pay medical bills. Credit cards offered through Care Credit are specifically for medical bills. Opening a credit card with a 0% intro APR period can also be really helpful if you have good or excellent credit but don’t have the cash you need to pay your medical bills. If you can qualify for one of these cards and use it for your medical bill, the medical debt won’t be sold to collections, and you can pay it off at your own pace. Remember that if you do apply for one of these credit cards that you’ll want to have the balance completely paid off before the intro APR expires – otherwise you’ll be stuck paying interest as well.

  1. Keep an Eye Out for Medical Debts

It can be easy to miss medical debts and charges when you’re not actively keeping an eye out for them. Communication with your provider and insurance company is essential but it can easy to let the ball drop if you have lots of medical expenses.

Oftentimes you won’t know you owe on a medical debt until it goes to collections. That’s why it’s critical that you review your credit reports annually, and monitor your credit scores on a regular basis. Think of it as a checkup for your credit health.

This article was most recently updated August 7 by Elisa Rogers. Paige DiFiore contributed to this article. This article was originally published December 8, 2016. 


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