How Does Medical Debt Affect Your Credit Score
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Medical care is obviously an important part of staying healthy, but costly medical bills can cause your bank account to suffer. Four in 10 Americans with employer-sponsored health insurance had problems paying medical bills last year, the Kaiser Family Foundation reports. In a survey by The Commonwealth Fund, 40% of adults who struggled to pay medical debt say their credit rating has suffered as a result. Medical debt can negatively impact your credit score because by the time it shows up on your credit report, the debt has already gone to collections. Having an account in collections can seriously affect your credit score even if you are actively making payments on the debt.
If You Have An Unpaid Healthcare Bill Here’s What You Can Do To Protect Your Finances
You do everything you think you’re supposed to. You maintain good health insurance. You choose in-network doctors and hospitals. You pay the bills you think you owe.
But despite your best efforts, you could still wind up having problems with a medical bill that could affect your credit standing.
Nearly 3 in 10 insured Americans had an unpaid medical debt sent to a collection agency, according to a recent nationally representative Consumer Reports survey of 1,000 adults who had a medical expense over $500 in the last two years.
Of those, 24 percent didn’t realize the bill was owed and 13 percent said they never received the bill in the first place. Another 10 percent said the bill was sent to collections mistakenly, even though they had already paid it.
Of course, sometimes a medical bill goes unpaid because you don’t have the money. Other bills become delinquent because of billing errors or an insurance dispute, which can take months to untangle.
But whatever the situation, the impact is the same. Medical bills, like any unpaid debt, can do major damage to your finances if left unresolved.
The delinquent bill will eventually show up on your credit report and drag down your credit score. A low credit score can make it more expensive to borrow or could result in a loan being denied. Employers and landlords often look at your credit history, too.
What To Do First When You Have Medical Debt
Realizing you have outstanding medical debt might feel like cause for panic, but it doesnt have to be. After all, there are a few options that you can try to resolve that debt before it becomes something you can no longer manage.
As soon as your first bill is issued, contact your medical provider. You may be able to negotiate your outstanding costs with them. Many medical providers make mistakes in billing, and if you simply ask for an itemized bill, you may find that some of that outstanding total mysteriously disappears.
You may also be able to work out a payment plan with your provider, or with a debt collector that they send your outstanding debt to. But what happens once that debt is in collections? Are you going to see the impact on your credit report?
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What Is The Medical Debt Relief Act
The Medical Debt Relief Act is federal legislation, introduced in 2021, that would help consumers pay and manage medical debt. If enacted, the law would require credit agencies to give consumers a 1-year grace period before including medical debt on credit reports. The legislation also would remove paid or settled medical debt from credit reports.
What Can You Do Once Medical Debt Has Appeared On Your Credit Report
Once medical bills have hit your credit report, there might still be something you can do. This is especially true if you feel that they are unfairly impacting your score.
If you feel like you have already repaid your outstanding debt or that it was reported incorrectly you can dispute the report item with your credit bureaus. You will have to do so individually, filing a report with each of the agencies. It is free to file, and you will likely need documentation proving that you have already paid the amount that is being noted as outstanding.
Remember, accounts are managed by humans and humans can and do make mistakes. Simply contact each agency and address your concerns to resolve those mistakes cordially.
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Dispute For Any Credit Report Errors
When reviewing your credit report, you might find mistakes on it. It could be a record of a missed payment that you didnt miss or even an account that does not belong to you.
Credit bureaus have processes for disputing these errors. If you catch an erroneous medical debt on your report, reach out to the medical provider. They might be able to remove the information from your credit report. If theyre unwilling or unable to help, you can dispute it with the credit bureau directly. Removing these errors could significantly boost your score.
Can Hospital Bills Be Written Off
Many factors determine how a hospital or other healthcare center can write off a patient’s bill. Types of hospital write-offs include: Charity care write-offs, as described above, may be one component of a community care effort, as part of a faith-based healthcare system, or a financial assistance program.
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Why You Should Not Pay A Collection Agency
On the other hand, paying an outstanding loan to a debt collection agency can hurt your credit score. … Any action on your credit report can negatively impact your credit score – even paying back loans. If you have an outstanding loan that’s a year or two old, it’s better for your credit report to avoid paying it.
Gerri Detweiler Credit Expert Responds
Hi Steph,
It sounds like there are several issues you are grappling with:
Lets take a look at each of these issues so you can try to make an informed decision about your next steps.
Medical debt in collections
Medical debts in collections are responsible for over half of all collection accounts on credit reports, so youre certainly not alone in your concerns about how to pay this debt. Prior to your medical bill being turned over to collections did you make any attempts to work something out with the clinic, such as requesting a reduction in the balance and/or a payment plan? If not, you may want to at least make an attempt to do that first.
Contact the original provider and ask if they can pull it back from collections so you can resolve the bill with them directly. The advantage of this approach is that there will no longer be a risk that it will be listed on your credit reports as a collection account, which is considered quite negative. You may also be able to work out an interest-free payment plan directly with the provider.
Using a credit card for medical bills
This strategy is a bit of a long shot since the debt has already been turned over to a collection agency, but its worth a try.
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Do Medical Bills Hurt Your Credit
Medical bills will not affect your credit as long as you pay them. However, medical debt is handled a little differently than other types of consumer debt. Since most health care providers don’t report to credit bureaus, your debt would have to be sold to a collection agency before appearing on your credit report. Most medical providers won’t sell the debt to a collection agency until you are 60, 90 or even 120 days or more past due. Exactly when that happens depends on your health care provider.
Even after your bill goes to collections, the account won’t show up on your credit report right away. The three main consumer credit bureausExperian, TransUnion and Equifaxgive you a 180-day waiting period to resolve any medical debt before the collection account appears in your credit history, so medical bills won’t impact your credit score right away.
This doesn’t mean you should ignore a medical bill. Unpaid medical bills may take a long time to show up on your credit report, but the damage to your credit score can be long-lasting once they do. Unpaid medical bills can remain on your credit report for seven years after they become delinquent.
What Should I Do If I Get A Medical Bill I Cant Afford To Pay
You typically have more time before a delinquent medical bill ends up on your credit report than with other types of debt because medical billing is complex and often involves insurance companies. Since 2017, the credit bureaus have instructed collection agencies to wait at least 180 days roughly six months from the time a bill becomes delinquent before reporting it, Mr. Creighton said.
Dont panic, said Caitlin Donovan, the spokeswoman for the Patient Advocate Foundation. Begin by checking if the bill is accurate. This usually means comparing it with an explanation of benefits from your health insurer or contacting the provider for clarification. The so-called EOB usually states that it is not a bill so people sometimes ignore them. Dont, Ms. Donovan said. The benefit statement is proof that your insurer has been billed and gives you information to help challenge questionable charges. In some cases, Ms. Donovan said, hospitals may mistakenly send bills directly to the patient rather than billing the insurer first.
If the bill is accurate, call the providers billing office and ask about monthly payment plans. Also, many hospitals have programs to help low-income people pay medical bills but they may not mention them unless you inquire. You have to ask, Ms. Donovan said.
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Next Steps: How Can I Keep Medical Collections From Ever Appearing On My Credit Report
These tips could help you keep medical bills off your consumer credit reports.
What About Medical Bills For Covid
In response to the coronavirus pandemic, the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, includes a number of provisions related to COVID-19 treatment and medical bills.
- If youre insured, COVID-19 testing is free when you get tested by a provider in your network. Your insurer must waive your share of the cost. And if you visit out-of-network providers, you cant be charged any more than you wouldve been charged for visiting in-network providers. If your test comes back positive, some private insurance companies will waive the medical costs of treatment, but they arent required to do so.
- If youre uninsured, medical providers may submit your medical bills to the federal government for reimbursement, in which case you shouldnt have to pay. The CARES Act prohibits providers from balance-billing uninsured people if the provider got federal reimbursement for the bill. But its up to your healthcare provider to decide whether to bill you or Uncle Sam.
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A Positive Change For Credit Reports
Even consumers who do a good job of managing their money and sticking to a budget can end up with medical debt. Falling behind on that debt often results in credit score damage. Once that occurs, borrowing for just about any purpose becomes more difficult.
Now, those with settled medical debt, or low levels of it, should not have to worry about a negative impact to their credit. And that could spare a lot of consumers a world of stress and heartache.
Recently, the Consumer Financial Protection Bureau reported that Americans had $88 billion in medical debt listed on their credit records as of June 2021. However, the agency also found that most of those individual debts were under $500. The aforementioned change could really spare most consumers from being negatively impacted by medical debt from a borrowing perspective.
Of course, it still pays for consumers to do what they can to avoid medical debt in the first place. That includes saving money for healthcare expenses, reviewing bills carefully for errors, and negotiating with providers in situations where insurance companies won’t pick up the tab. But the fact that the credit bureaus are getting more lenient with medical debt reporting is an unquestionably good thing.
Dont Sweep It Under The Rug
We get itseeing several zeros after the amount you owe can be incredibly stressful. However, its important not to avoid your bill or put it off until another day. Ignoring it wont make it go away.
Especially since the communication between healthcare providers and insurance companies can leave room for errors, you dont want to assume that not hearing anything means you dont owe anything. After a visit to the doctor, follow up with your insurance provider if you havent heard from them in 30 to 45 days to verify youre caught up on payments.
To understand exactly what youre being charged for, you can also ask your medical provider to show you an itemized bill. This breaks down everything youre being charged for all the way down to how many ibuprofen you were given. Its much easier to verify charges and reconcile any discrepancies if you understand what youre being charged for. You may also have more leverage when it comes to negotiating your bills.
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What Happens If I Dont Pay My Medical Bill On Time
If you dont find a way to pay your healthcare bill, the provider may sell your account to a collections agency. The business may be a law firm that collects debt. That is why ignoring a medical bill is never a good idea.
Debt collectors must reveal that they are trying to reach you to collect a debt. They may contact you in several ways, including by:
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Leaving you a voicemail
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Sending you a letter in the mail
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Contacting you via social media
Debt collectors have a dubious reputation for being aggressive in their efforts to make people pay, but consumers have some protections. Under the Fair Debt Collection Practices Act, it is illegal to harass or threaten someone while trying to collect a debt. As of November 2021, there are additional rules about how debt collectors may communicate with you and your rights in debt collection.
A healthcare providermay sue you for an unpaid debt. This legal action may have the following results:
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A civil judgment
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A lien against your property
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A court order to garnish your wages for repayment
How Can Unpaid Medical Bills Affect My Credit
Unpaid medical bills can affect your credit by showing up as a negative mark on your report after they go into collections. But they wont show up immediately after you get a bill you cant afford.
How long does it take to affect my credit?
Generally medical providers are required to wait 180 days before sending an unpaid medical bill over to collections. It shouldnt appear on your credit report before that time.
How much can it hurt my score?
Medical debt generally doesnt hurt your score as much as other types of debt regardless of what type of credit scoring. If its low enough, there wont be any impact at all. The FICO 9 scoring system which most lenders use to evaluate credit also doesnt consider any debt under $100.
This is relatively new. An earlier version of FICO weighed medical debt the same as other debts. After it made the switch to, FICO 9, FICO found that consumers credit scores jumped about 25 points.
How long does it stay on my report?
Unpaid medical bills can stay on your credit report for up to seven years after they were sent to collections. But it can be removed if your debt is paid off by an insurer.
What if my insurance never paid my medical bill?
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