Medical Debt Can Have a Serious Effect on Your Credit Score and Your Ability to Get Credit

Even a small medical debt sent to collections can lower your credit score significantly

Medical Debt Can Have a Serious Effect on Your Credit Score and Your Ability to Get Credit
Image: Pixabay
April 18, 2018

If you don't have health insurance and are forced to go the hospital in a hurry, what happens if you don't pay your bill? What if you do have health insurance but somehow forget to pay your copay? Does this debt have any impact on your credit rating and credit score?

Medical debt is reported to the credit bureaus when in collections

Many people are under the misconception that medical debt does not get reported to credit bureaus. It is true that when you owe money to your doctor or a hospital, it generally does not show up on your credit. But when the bills go unpaid for a while, they can often end up in collections and show up on your credit report, negatively affecting your credit score and credit worthiness.

larger debt amounts get reported faster than smaller amounts

Doctors and hospitals don't hesitate to send large bills to collection agencies much sooner than smaller medical bills. To avoid having any of your medical bills reported to credit bureaus, consider the following steps:

  • Pay off the bills if at all possible.
  • Agree to a payment plan with the provider and stick to it.
  • If you have a significant bill in dispute, put a statement on your credit report.
  • Pull your credit report regularly and monitor for any negative items.

the hit from medical debt showing up on your credit report can be significant

If you are unfortunate enough to have unpaid medical debt show up on your credit report, you can expect a large drop in your credit score. One collection account can cause your credit score to drop by as much as 100 points. Additional medical debt that gets added can cause your credit score to plummet even further.

Medical debt might not affect your credit score depending upon which version of the credit score is used

The FICO score model is updated periodically. The most recent version of the FICO score, the FICO 9, ignores any collection account that has been paid and typically gives less weight to medical collection accounts. However, the FICO 9 is still relatively new, released in 2016, and not everyone is using it yet. If FICO 8 is still being used by a prospective lender, you might have a poor credit worthiness with medical debt. Still, some lenders don't use a FICO score to determine your credit worthiness and rely on other scoring methods, each of which treats medical debt very differently. In the end, it's best to find some way to keep the debt current and off your credit report altogether to avoid these issues.

there is a brief delay before medical debt shows up on your credit report

You have to love all the intricacies that come with healthcare and health insurance, and we often find ourselves with an item that the insurance company isn't covering, insurance that is incorrectly filed, copays that are misapplied, etc. So it's inevitable that you'll find yourself at some point with an unexpected bill or an issue that causes you to owe money. The three major credit bureaus understand this and won't report medical debt until 180 days have passed, which gives you time to resolve the problem with your doctor and insurance company.

you should always try to negotiate

If you run into a billing dispute with your doctor, try to negotiate a lower payment or a payment plan as an alternative to turning the bill over to collections. If a collections agency contacts you, ask the agency to not report the item to the credit bureaus right away if you can resolve the item quickly.

watch out for scams

Don't always assume that a collections agency contacting you is a result of a legitimate bill. Scammers are known for taking advantage of unsuspecting people and their desire to keep good credit scores that they are able to scam you before you realize you've been duped. So if you are contacted about a collections account, verify it first before paying any money.

watch out for errors on your credit report

Don't always assume, either, that any medical debt that shows up on your credit report is debt that you actually owe. Mistakes do happen and unscrupulous credit collection agencies have been known for placing items on your credit report that were unverified or incorrect. If you see any erroneous or suspicious item on your credit report, dispute it.

if your healthcare provider isn't in your network

Medical bills can pile up quickly if your healthcare provider is suddenly not in your insurer's network anymore. But there are some things you can do about it.