How Does Medical Debt Affect Your Credit Score, and What You Can Do About It?

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 a or from a bout of food poisoning, sometimes life’s medical expenses can get pricey. 

While the vast majority of health providers will generally not report medical debt to the three credit bureaus, the same cannot be said of debt collection agencies. When a healthcare provider cannot collect on overdue accounts, they may send them to collections. This debt will then reflect on your credit report.

Medical bills get out of hand very easily, and when this debt is sent to collections, consumers pay the price in many ways. How are you supposed to save up for an emergency when a simple trip to the ER could wipe out all of your savings? How are you supposed to protect your credit score when your health is declining or an accident happens?

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 high and defaulted medical bill on your credit report. Unlike most other forms of debt, medical bills often come unexpectedly and aren’t designed to build credit or facilitate an investment.

How, exactly, does medical debt impact your credit score? What can you do about it? This article will provide some insight into this issue and help you make an action plan going forward.

Understanding How Medical Debt Impacts Your Credit Score

Unless you have an excessive amount of medical debt looming over your head — often stemming from an accident or a chronic condition — it’s easy to dismiss the potential ramifications of medical bills on your credit. However, you don’t need to have a mountain of medical debt for it to have a big impact on our credit score. 

In fact, your credit takes a big hit any time a medical bill is sent to collections, usually in the range of 30 to 100 points, depending on the amount. This is easily enough to move an “excellent” or “good” credit score into the “fair” or “poor” range. Worse, medical debt collections generally remain on your report for seven years. 

A survey from 2014 by the Consumer Financial Protection Bureau that sampled 5% of all credit reports found that most medical debt averaged at about $579, with a median amount of $207. That doesn’t seem like much, but when many hospitals only wait 30 to 60 days for payment before sending the account to collections, that small amount could cause a world of hurt to your credit score. 

Recent Changes to How Medical Bills Impact Credit

There have been a few changes over the years in the severity of medical bills. These have resulted in some credit bureaus not weighing medical collections as heavily as they had 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.

Note, however, that many lenders continue to see medical collections just as any other delinquent account. 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 if you’re interested in improving your credit score.

Finally, there is now a 180-day waiting period for medical debt to appear on your credit reports from all three credit reporting agencies. This gives you some time to handle any billing issues and negotiate payment without putting your credit at risk.

How to Improve Your Credit if You Have Medical Debt

It is vital to avoid the consequences outlined above if you want to maintain your financial wellbeing. There are a couple of approaches to doing so: paying off the debt and disputing medical bills. Further, if there are any errors on your credit report, you must be proactive in having these removed.

Negotiating and Paying Off Medical Bills

Paying off medical debt is a clear route to avoiding the negative effects it may have on your credit score. However, if you have more debt than you can reasonably handle at the moment, you may need to open up a conversation with the hospitals in question to determine if you have any flexibility regarding payment terms.

There are many options when it comes to negotiating hospital bills. One of the most common ways patients can make medical debt more manageable is to set up a payment plan. This allows you to make incremental payments on the debt each month (usually at a lower interest rate than credit cards) and prevent the debt from entering collections.

Many health facilities also have additional assistance programs for both uninsured and insured patients, and they may be able to offer you discounts on your bills. In cases where it is clear that the patient cannot afford their medical bills, most healthcare providers are willing to accept partial payment in lieu of nothing at all. While bill forgiveness and reduction options may be difficult to use, it’s worth checking if you qualify for any such programs.

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. 

Disputing Medical Bills

You can also dispute medical bills with the healthcare provider. Review and file away all of your medical bills and explanations of benefits (EOBs) when you get them, as this will help you notice any billing errors as they occur. 

It’s important to keep in touch with your insurance company and healthcare providers when you spot a potential mistake, as they may be able to spot honest mistakes and fix them in a quick and painless manner. If you have questions about billed services, request an itemized bill so you can investigate. This will allow you to identify precisely which charges were erroneously billed and will help when discussing your case.

In situations where you are unable to get the error fixed, it may be necessary to seek legal representation to navigate the issue. They will be able to review the billing issue, give you personalized advice, and pursue legal action if necessary.

How to Handle Medical Debt Collections on Your Credit Report

If these medical billing errors are already reflected on your credit report, or if bills that you’ve already paid are still lingering on your report, you need to take action. Similar to how you’d dispute billing errors with a hospital, it’s vital to collect documents relevant to the medical services that were rendered. If you do not have your bills and EOBs, request them from the healthcare facility. 

You’ll then need to file disputes with the three credit bureaus to remove the inaccurate information. They will launch investigations into your claims and fix any errors. You should use a dispute letter template and send your disputes using the contact information for the three credit bureaus.

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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