Credit Repair

How Medical Debt Affects Your Credit Score

If you have unpaid medical bills lingering on your credit report, you are not alone. Medical debt affects more than 43 million Americans, according to a 2014 study from the Consumer Financial Protection Bureau — and 1 in 5 credit reports has an overdue medical collections account.

Medical debt can feel overwhelming, especially because it generally hits when your health is compromised. It’s an even bigger blow to see the impact of these unpaid bills on your credit report and score. Medical collections can affect your financial well-being, but there are ways to mitigate the damage.

How medical bills affect your credit

Medical bills will impact your credit if you don’t pay them. But thanks to policies enacted in September 2017, the three major credit bureaus — Experian, Equifax, and TransUnion — only include medical debt on credit reports after a 180-day waiting period.

That six-month grace period before unpaid medical debts are reported to credit agencies allows patients more time to resolve insurance issues or address billing errors before these negative marks affect their credit history, said Rod Griffin, director of public education at Experian.

“We want to help people manage their finances more effectively,” Griffin said. “It’s incredibly complicated, and we made the changes because we want to help people manage those debts and not be affected by a debt that really isn’t something they owe.”

The impact of unpaid medical bills on credit scores varies depending on several factors, including:

  • The number of bills in collections
  • How recent the debt is
  • Your current score

A spokesman for VantageScore, one of the major scoring models, told us that individuals with higher scores could see a decline of 125 to 140 points because of unpaid medical debt. Those with lower starting scores will see less of an impact.

The credit scoring models from VantageScore and FICO do not weigh unpaid medical debt as heavily as other collections accounts. Once a medical collections debt is paid, it no longer factors into your score calculation. But the positive impact on your score when you settle your debt may not be as drastic as the negative effect when collections are first reported.

Research conducted by FICO before the 2017 policy update showed that roughly 75 percent of those who had eligible medical debt — collections paid by insurance or accounts less than 180 days old — removed from their credit reports saw their scores change by less than 20 points. This was attributed to the fact that many people with medical collections have other negative marks on their credit history.

“The number of people with medical collections in their credit report relative to the overall population is pretty small,” Griffin said. “If there’s a medical collection, typically we see that there are other kinds of financial challenges as well, so having a medical collection not appear may not have had a huge impact for most people.”

Even though your credit score will eventually rebound once your debt is cleared, the negative mark from unpaid medical debt will remain on your credit report for seven years — and the ding will be visible to lenders who pull your credit.

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How to deal with medical bills sent to collections

The updated reporting policies mean that medical debt can be in collections for six months before you see any impact on your credit. If you’re able to, try to resolve any debts with collection agencies within this 180-day grace period. Familiarize yourself with unfair collections practices so you know your rights and what to do when debt collectors call.

Whether you should pay off medical collections accounts after they land on your credit report depends on the age of the debt. Older debts carry an expiration date, or a statute of limitations, which basically means that collectors can no longer sue you or freeze your assets in an attempt to obtain payment. The statute of limitations on medical debt varies by state and ranges from two to 15 years.

While an unpaid medical debt will remain on your credit report for seven years, the statute of limitations may expire much earlier. At this point, you have no legal obligation to pay off your debt, and it may not even make sense to do so. If the debt will soon be removed from your credit report anyway, paying it off will provide limited benefit to your credit score, and the money you spend to settle it may be better used to meet your current financial obligations.

If you do choose to pay down more recent collections debt, always start with the newest accounts first since they’ll be on your credit report the longest.

How to stop medical bills from landing on your credit report

The best way to stop medical bills from showing up on your credit report — and negatively impacting your score — is to pay them. This doesn’t mean you should write a check for the full amount as soon as you receive a statement, nor will you necessarily be on the hook for a large sum of money you can’t actually afford. Before you pay your bills, there are a few important steps you should take.

Review every bill carefully for errors

Unfortunately, medical billing errors are not uncommon. It’s estimated that anywhere from 30 percent to 80 percent of bills contain an error, according to Thomas Nitzsche, a credit educator at Money Management International. One 2017 study from medical billing advocacy group Medliminal found errors in 99 percent of the more than 1,700 bills it reviewed.

Although not every billing error will result in the patient owing more money, some are costly. Before you make any payments, request itemized bills and review all documents for treatments you didn’t receive or line items that have been miscategorized. Common errors to look out for include being charged more than once for the same service, incorrect medication dosages, charges for preventive care that are actually covered by insurance and incorrect insurance reimbursement.

Understand your insurance

If you have health insurance, make sure you review both your Explanation of Benefits (EOB) and your billing statements side by side. This will help you understand what’s covered by your plan, what you’re being charged for and whether there are any discrepancies between the two. Call your insurance company if you have trouble making sense of these documents.

If you do find errors with either your original bill or your insurance reimbursement, call your provider and insurance company and request to have these charges updated or removed.

Negotiate your bill

Once you’ve sorted out errors and insurance claims, call the billing department for your hospital or physician — wherever your bill(s) came from — and ask about options to reduce your bill or set up a plan to make your monthly payments more affordable. Some providers offer payment assistance and may even waive your balance if you prove financial hardship.

“Financial aid should be the first step when left with a large outstanding balance, especially if it’s a hospital bill,” said Nitzsche. “An in-house payment arrangement with the original provider keeps it from going to collections and will usually result in the most affordable payment if you’re wanting to spread it out over a period of time.”

Although applying for financial aid doesn’t guarantee you’ll qualify, simply submitting a request delays collections activity and keeps the debt off your credit report for longer, Nitzsche added.

Consolidate your debt

If, after you’ve exhausted your options with your care providers and insurance company, you still have debt to pay, you may consider consolidating your bills. There are several loan types for medical debt consolidation:

    • 0% intro APR credit card
    • Personal loan
    • Home equity loan
    • 401(k) loan

Each comes with risks and benefits, so, before you commit, make sure you shop around and understand your monthly payment and interest obligations, as well as the consequences of defaulting on the loan.

Can medical debt be removed from a credit report?

Once medical debt hits your credit report, it generally stays there for seven years — even if you settle the debt with the collections agency. At that point, your credit report will update to reflect that you’ve settled the account.

But if the collections was reported in error, you may be able to have that line removed earlier.

“You can dispute it with us and we’ll go back to the source if you believe it shouldn’t be reported, and if the source agrees we will take it off the credit report,” Griffin said. “You may work with the medical provider and they may agree to take it off, although that’s going to be the exception. If it’s an accurate collection account, they are obligated to report that information accurately.”

While accurately reported medical debt remains on your report for seven years, it has less impact on your score as time passes — and once you pay off collections accounts, they won’t likely factor into your score at all.

Dealing with debt that insurance doesn’t cover

If your insurance company doesn’t pay part or all of your medical bills, you should definitely work with your provider to negotiate a bill reduction or payment plan, especially if paying any part of your debt presents a financial hardship. The best way to prevent negative marks on your credit is to keep your debts with the original provider for as long as possible.

“If you wait until you are in collections, you can’t get financial aid,” Nitzsche said. “You may have been eligible for some or even all of your bill to be covered, but you either didn’t know to apply for aid or waited too long.”

One way to ensure your insurance will cover more of your medical costs is to check your benefits before you receive care. This isn’t always possible in an emergency, but if you choose in-network providers over those out of network and opt for services that are allowed under your plan, you likely won’t be hit with such shocking bills.

If you’ve taken the above steps and still feel like you’re drowning in debt, you can work with a credit counselor to consolidate your payments through a debt management program. Nonprofit credit counseling agencies typically negotiate interest rates and fees with lenders — though when it comes to medical debt, these programs are more to help you manage your payments because medical bills are already zero interest. At the very least, a credit counselor can walk you through your options and help you determine the next steps.

The bottom line

Don’t be afraid to ask for help from your provider, your insurance company and a credit counselor. Collect all the information about your unpaid bills, ensure you understand your obligations and go from there.


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