Can Medical Bills Affect Your Credit? What Happens When Medical Bills Go To Collections

Katie McBeth  | 

If you live in America, chances are you will have to deal with medical bills sometime in your life. Whether it’s from a broken arm or a bad bout of food poisoning, sometimes life’s medical expenses can get pricey.

This gives rise to a host of questions. How are you supposed to save up for an emergency when a simple trip to the ER can wipe out all of your savings? Do unpaid medical bills affect your credit? Can your medical bills be sent to collections if you’re having trouble paying them back? What happens if you can’t pay medical bills?

Unfortunately, the truth is that medical debt can get sent to collections, which can definitely hurt your credit score. However, the situation is rarely straightforward. You have recourse, and ways to prevent this damage from happening in the first place.

Since many Americans will have to deal with this sometime in their life, it’s important to know what you can expect to see from a defaulted medical bill on your credit report. Unlike most other forms of debt, medical bills can come on unexpectedly. Most people don’t visit the hospital for the sake of building credit or making an investment. Overdue medical bills can easily go to collections, which in turn can cause a lot of headaches.

Here at Fiscal Tiger, we want to provide you with some medical relief from your financial worries. Let’s dive into the effect medical bills can have on your credit score.

Can Medical Bills Go to Collections?

Unpaid medical bills absolutely can go into collections. Seeing your medical debt go to collections is one of the worst things that can happen to you after a serious health emergency. Surprisingly, 52.1 percent of all debts sent to collections in the United States are related to medical bills. A survey from 2014 by the Consumer Financial Protection Bureau that sampled 5 percent of all credit reports found that most medical debt averaged at about $579, with a mean amount of $207. That doesn’t seem like much, but many hospitals only wait 30-60 days for payment before sending the account to collections.

Even a relatively small medical bill could cause of world of hurt to your credit score when collections agencies get involved. Collections agencies are masters of pestering when it comes to medical debt, but they can also sue you for unpaid medical bills if you take too long to repay.

Ultimately, there are better ways of handling medical debt than working with a collections agency. Negotiating a settlement or seeking help from charities that pay medical bills are both promising options compared to battling collections.

Medical Bills on Your Credit Report

If your medical debt does go to a collections agency, you may think that there isn’t much that they can do to your for leaving your bills unpaid. The most powerful tool for collections agencies is wage garnishment, which will require you to show up in court. However, you cannot be sent to jail for unpaid medical debt.

While jail is not on the table, collections agencies can still do a lot of harm in some very legal ways. Namely, they can report your unpaid medical bills to a credit reporting bureau, devastating your credit score.

When Medical Bills Get Reported to the Credit Bureaus

Luckily for those 43 million Americans with medical debt in collections, there have been a few changes over the years in the severity of medical bills, at least in terms of reporting and using it to calculate your credit score. Let’s look at some of the ways medical bills have been treated in the past five years.

As of September 15th of 2017, the three major credit reporting agencies — Experian, Equifax and TransUnion — will wait at least 180 days before including any unpaid medical debt on a credit report. This change is intended to allow individuals to work with their medical providers and find common solutions before their credit score is affected.

This six month waiting period could be a major benefit to most people with medical bills in collections. It will give them the time they need to sort through insurance, and to figure out what is owed to whom.

Unfortunately, there is a small catch. Not all lenders are up to date on the latest model being proposed by FICO and VantageScore. This latest adjustment will create FICO9 and VantageScore 4.0, the official names of the new models, but many lenders are still relying on older models to make their decision. Since those older models are still in use — and you can’t force lenders to use a more updated score model — many consumers with medical debt may still find it difficult to get approved for loans. Luckily, once a loan is paid off, it will look better on your credit score as time goes on.

How Medical Bills in Collections Affect Your Credit

Prior to 2016, many lenders saw medical collections like any other delinquent account. This meant it would show up on your credit report even after it was paid, but its impact on your credit score would decrease in severity as time passed. This is the same with any other debt account that has gone to collections: the account and your history look less insecure to creditors over time, as long as you avoid letting any other debts become delinquent. Since many lenders are still using this rule in determining your credit score, it is vitally important to pay off your medical debt as soon as possible.

However, more recent changes have resulted in some credit bureaus not weighing medical collections as heavily as they had done before. They are able to differentiate between medical and non-medical collections to make a more accurate assessment of lending risk. Unlike most other forms of debt, medical debt does not always reflect consumer choice or foreknowledge of the risks and rates involved: such as insurance coverage, additional charges, deductible, and more. With loans, lenders are obligated by law to disclose interest rates, terms, and the amount of loans being made. Medical costs are largely opaque, and vary depending on a variety of factors. This complicates the question of whether medical debt is a fair (or accurate) representation of consumer behavior, or lender risk.

According to a 2016 Experian Community Question: “With the newest credit scoring systems, now beginning to be adopted by lenders, if you pay a medical collection off, it will not be included in the score calculation, so paying that medical collection could help your credit scores right away (or at least within the next billing cycle).” This means it will only hurt your score as long as the debt goes unpaid. Once it is paid off, it will no longer be reported on at all.

No matter what your situation, the key takeaway is to pay off your medical debt as soon as possible. Some scoring models will be able to provide you with a grace period, but older models could still haunt your score. Luckily, once a debt is paid, it can only improve your score over time.

What Happens When Medical Bills Go to Collections?

More than your credit score is at risk when you have any debt sent to a collection agency. If you have unpaid medical debt and you don’t think that you’ll be able to take care of it anytime soon, it’s important to know what your options are. The more you understand how medical providers and collections agencies deal with medical debt, the more equipped you’ll be to pay, take back control of your finances, and repair your credit score.

Know Who You Owe

What kind of options you have depends on whether your hospital still owns your debt, or whether they’ve sent your unpaid medical bills to an outside collections agency. Your hospital is interested in getting paid for the medical services that you received. So potential mistakes on your hospital bill need to be brought up with them. However, a collections agency is only interested in the debt, now matter how you came by it.

Prepare to Deal with the Insurance Company Alone

Spotty or unclear insurance coverage is one way that you can end up with medical debt. Delays on their side can still land you in trouble with the hospital or collections. The good news is that, if you file an appeal with your insurance company and earn coverage for treatment that you received, your insurance might take care of your debt completely. The bad news is that collections agencies aren’t terribly interested in going back and forth between you and your insurance company. If your medical provider has sent your debt along to a third party collections agency, be prepared to deal with insurance on your own.

Know Your Rights

Collections agencies are good at coming across as intimidating, but there are limits as to what they can do to your for unpaid medical bills. Here are some things that they can do:

  • Report your medical debt to credit reporting bureaus. However, they can only do this after 180 days, following the new rule change from 2017.
  • Take you to court, suing you for unpaid medical debt. If a collections agency tries this, they’re probably interested in using wage garnishment to collect your payments.
  • Summon to court to answer questions in a debtor’s examination. If this happens, make sure that you show up on court. The collections agency probably thinks that you’ve been lying about your ability to pay, so they’ll want you to answer questions about your finances before a judge.

If you have unpaid medical debt that’s been sent to collections, here are some things that you don’t have to worry about:

  • Being sent to jail. As long as you show up for any court hearings about your debt, you absolutely cannot be jailed for civil debts. Debtors’ prisons are a thing of the past.
  • Harassment from collections agencies. A collections agency can make reasonable attempts to collect your medical debt, but they aren’t allowed to harass you. This includes consistent harassment through phone calls, threats of violence, or threats that they will make your name and debt public.
  • Being tricked by debt collections. A debt collector must be upfront and honest about their identity and intentions. If you believe that a debt collector has lied to you or otherwise harassed you, you can file a complaint with the Consumer Financial Protection Bureau.

Make Payment Arrangements or Prepare to Declare Bankruptcy

Although new rules have helped consumers by lessening the impact of medical bills on your credit score, it’s still important to pay your medical debt in a timely fashion. You don’t have to pay it all at once, but you should seek to negotiate a payment schedule that works for you.

If you feel that you will never be able to pay down your medical debt and your debts are spiraling out of control, it may be time to consider bankruptcy. However, bankruptcy will damage your credit severely, so it should only be used as a last resort.

Putting Medical Pain Behind Us

You may be surprised to find that millions of other Americans are also suffering from medical billing pains. Luckily, the three credit reporting companies, along with the FICO and VantageScore scoring models, will begin to reflect the pain points of consumers in the future, and will make adjustments that can benefit everyone with medical debt.

Medical collections may be keeping you up at night, but it no longer has to be a major headache for you moving forward. Pay off your debts if you can, and make it a point to put all your medical billing pain behind you.

What can hurt your credit score? Find out at our credit score resource center. If there are inaccuracies on your credit report, like medical debt that is not yours, visit our dispute letter template resource center.

Katie McBeth is a researcher and writer out of Boise, ID, with experience in marketing for small businesses and management. Her favorite subject of study is millennials, and she has been featured on Fortune Magazine and the Quiet Revolution. She researches SEO strategies during the day, and freelances at night. You can follow her writing adventures on Instagram or Twitter: @ktmcbeth

This post was updated February 28, 2019. It was originally published August 17, 2017.