How Do Medical Bills Affect Your Credit Score?

Medical bills on credit report 2016

Medical care in America is costly, even for those with insurance. Leaving medical bills unpaid can have an adverse effect on your credit, leaving you paying higher interest rates on future credit for which you apply. You even face the possibility of being turned down for credit and loans due to unpaid medical bills on your credit report.

Unlike credit cards or loans, medical bills that aren’t in collections or for which you have a payment plan do not appear on your credit report. Leave a medical bill unpaid, however, and the hospital or doctor’s office that you owe will eventually send it to a collection agency. Collection agencies often report medical debts to the credit bureaus. Collection accounts are detrimental to your credit score and, according to the Fair Credit Reporting Act, can remain on your report for up to seven years.

A 2009 CNN report lists medical bills as the underlying cause behind more than 60 percent of all U.S. bankruptcies. When medical bills lead an individual to file for bankruptcy, his credit automatically suffers as a result. Bankruptcy is one of the worst notations you can have on your credit report and can drop your credit score by as much as 300 points.

A small percentage of unpaid medical bills can slip by undetected. Although they may appear on your credit report, they won’t impact your overall score. The FICO 2008 credit scoring formula, released in 2009, doesn’t include collection accounts under $100 in its calculations. Thus, a medical collection below the $100 mark will show up for lenders that review your actual report, but won’t impact your score. Like other collection accounts, small collection accounts are removed from your credit report after seven years.

Although medical debts can appear on your credit report and hurt your credit score, not all lenders view them the same way. While some lenders and creditors pull only your credit score, some, such as mortgage lenders, pull both your credit score and credit report. Credit.com quotes Lyndal McLaughlin of Fairway Independent Mortgage as stating that some mortgage underwriters do not place as much importance on medical collections when reviewing mortgage applications. Thus, although a medical collection may damage your credit score, it may not damage your chances of getting approved for a mortgage.

While a small medical debt may not affect your credit score, not paying the debt can result in a lawsuit from the collection agency. If you do not appear in court with a solid defense against the lawsuit, the judge may award a judgment in the collection agency’s favor. This judgment will then appear on your credit report. Judgments are public records which, like bankruptcies, can do catastrophic damage to your credit score.


How do medical bills affect your credit?

Have you or a loved one accumulated medical bills recently? Read here to find out how medical bills can affect your credit.

  • By John Ulzheimer with The Simple Dollar
  • 10/13/2016
  • 643

Questions regarding your credit generally do not have a simple cut and dried answer. Instead, credit-related questions more often require the rather ambiguous and sometimes frustrating response of, It depends. The answer to the question How will medical bills affect my credit? is no different.

The impact your medical bills will have on your credit reports and credit score is going to depend on a variety of factors. Sometimes medical bills can be extremely damaging to your credit reports; sometimes they will have little impact; and sometimes medical bills will not impact your credit in any way whatsoever.

When Medical Bills Do Not Matter

The good news is that medical bills do not have to spell trouble for your credit reports and scores. The myth that medical bills will automatically damage your credit scores is, well… a myth. In fact, it is only unpaid medical debt which typically leads to credit problems in the form of collection accounts and potential court judgments.

If you have outstanding medical debt that is not being paid in full by your insurance provider (or is not being covered by insurance at all) the first step you should probably take is to give your medical service provider a call. In fact, even if you have health insurance, it's important to be sure that you're not responsible for any co-pays or deductibles.

If you find yourself holding the check for any uncovered medical debt, keep in mind that many (though not all) medical providers are willing to set up affordable payment plans. In the event a payment plan is accepted by your medical provider, you can generally keep unpaid medical debt from ever turning into troublesome medical collections as long as you consistently hold up your end of your payment agreement.

As alluded to above, ignoring your medical bills is a mistake, potentially a very big mistake, in the credit score department.

Unpaid medical bills generally turn into medical collection accounts, and sometimes can even lead to judgments if your creditor decides to sue you for your outstanding debt and you lose the case.

The addition of any new collection account to your credit reports is likely to be problematic, but the degree of the damage is going to depend upon other score factors from your credit reports.

Credit scores tend to take the path of least resistance. That is to say, it is easier for a good credit score to turn into a bad score than it is for a bad credit score to turn into an abysmal score. If you already have problems with derogatory information appearing on your credit reports, then adding one more medical collection account to the mix may not have much additional negative impact on your credit scores. However, if your credit is currently problem-free, then the addition of a collection account, even just a medical collection, could potentially have an extremely damaging credit score impact.

Many consumers incorrectly believe that medical collections are actually insignificant when it comes to the calculation of their credit scores. To be fair, in newer credit scoring models (such as FICO Score Version 9 and VantageScore 3.0), medical collections generally do cause less credit score problems than other types of collections might cause.

However, while this special treatment of medical collections might sound like good news for consumers who are currently facing this credit problem, it's important to keep in mind that most lenders, especially mortgage lenders, still rely on older versions of the FICO credit scoring model. These older credit scoring models will still judge the existence of medical collections just as harshly as any other type of collection account.

Therefore, if you plan to use your credit to apply for a loan or credit card in the future, your medical collection accounts could potentially cause you problems.


Medical Bills On Credit Report

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Medical Billing Questions Answered

I love this podcast. It started out over a year ago almost on a dare from some of my blog friends, but it#8217;s grown into a passion project for me. It#8217;s led clients to me, it#8217;s developed friendships for me, but more than anything, I love this podcast because I have the ability to educate and transform people#8217;s financial lives through it; and today#8217;s episode is a great example of why I love this podcast.

One of my private Facebook group listeners asked me to talk about medical billing on the show and with staggering statistics like 64 million consumers with medical bill collections on their credit reports, I can understand why. So, I immediately reached out to an expert in this field, Pat Palmer, founder of Medical Billing Advocates of America, and I was not disappointed by Pat#8217;s knowledge and advice for how to handle medical bills and disputes. It#8217;s my 79th show and one of the most important to me from an informational perspective. I hope you#8217;ll listen and know that you need to advocate for yourself where medical bills are concerned because it will literally save you hundreds if not thousands of dollars.

PAT — A Strawberry Daiquiri

SHANNON — Vodka soda with a splash of cranberry (called The Ponytail in Texas)


Credit Reporting Agencies and Medical Bills

Medical bills on credit report 2016According to the Wall Street Journal, the big three credit reporting agencies (TransUnion, Equifax and Experian) will now treat unpaid medical bills differently than other unpaid bills. This is good for consumers.

As anyone that#8217;s been to the doctor or undergone a procedure in the hospital knows, it can take a while to get your final bill, after insurance has paid their portion. The assumption, which is usually correct, is that if you wait to pay your bill, insurance will kick in to pay their part (or all) of your bill. However, in recent years, if you wait too long to pay your bill, the doctor#8217;s office or hospital will submit your unpaid bill to the credit reporting agencies and it can end up affecting your credit. I discussed how this affected me a few years ago here.

Now with new regulations, consumers will have up to 180 days to pay their medical bills while waiting for insurance to come through. This is not to suggest you should wait 6 months to pay your bills, it just means that you won#8217;t be reported to the credit reporting agencies for 6 months while you#8217;re arguing with the insurance companies to do their part!

But don#8217;t confuse nonpayment of medical bills with your non-medical bills. Regular bills that aren#8217;t paid will still affect your credit with the credit reporting agencies faster than you can say bad credit!

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