Can Medical Bills Affect Your Credit Score?

Are Medical Bills Harmful to Your Credit?

Credit score: it is a significant factor that determines your financial life. It affects the power to get loans, get an apartment, get credit cards, and much more. Considering how valuable good credit is today, you would prefer to know what affects your credit rating. Among the questions that many consumers ask, is if unpaid medical bills affect the scores in some way.

What the Research Shows

Studies have shown that medical bills do influence credit in the sense that they will perform poorly whether they become delinquent or collected upon. According to Consumer Financial Protection Bureau CFPB studies, forty million or more Americans have at least one medical debt showing on their credit records. Of them, about eight million individuals saw their credit ratings drop by 10 points or more, primarily from medical debt in collection. Medical expenditures may create financial difficulty as a difference of as much as ten points might translate into increased loan or credit card interest rates.

Similarly, another study conducted by researchers at the Federal Reserve also substantiated the finding that past-due medical debt significantly reduces credit scores. Across the consumers with medical debt in collections, credit scores dropped by an average of sixty-nine points compared to those with no medical debt.

Why Medical Bills are Bad for Your Credit

To fully grasp why unpaid medical bills hurt credit, one has to discover what determines credit scores in the first place. The most commonly used scoring model is FICO, which considers five core factors.

Credit history - whether you pay your bills on time. This category is the most important and contributes thirty-five percent of your final grade.
Credit utilization ratio - this is the percentage of your total available credit that you are using. It constitutes thirty percent of the total amount.
Credit history length - The total number of years and months credit accounts have been opened. Fifteen percent.
Credit utilization - If you have more than one type of credit such as credit cards, installment credit, mortgage, etc, then 10%.
New credit applications - This is the number of times you apply for new credit. Also ten percent.

Payment history contributes 35% of the overall score of your credit. If medical bills are not paid and are instead sent to collection agencies, they will also appear as negative entries on your credit report. Having too many of these marks adversely affects your payment history and your score drops. If you have good credit in all other aspects, the marks of medical debts are quite visible.

The Differences between Medical Debts and Other Debts

Another aspect worth mentioning when it comes to medical bills compared to other types of debts, such as credit cards or personal loans, is the regulation of reporting. Equifax, Experian, and Transunion, the three major consumer credit reporting agencies, set new rules on medical collection in 2017. These include:

Reporting Delays- Medical debts cannot be reported to the credit bureaus before a one-hundred eighty-day waiting period from the date of first delinquency. This means consumers are given more time to figure out how they will pay the care providers.
Erasure of Paid Debt- Once medical debt in collections has been paid, it must be erased from the credit report. Other kinds of collections are usually retained for seven years.

Having higher thresholds, there will be no report on any medical debts that had been incurred below five hundred dollars. Also, no medical collection may be reported after seven years.

However, these policies can help protect against some effects of medical debts as they still lower your score in the long run. Harm can come from a single bill with a high balance, although the rule only cares about the dollar amount â€“ not the number of accounts.

Ways to Keep Your Credit Safe from Medical Bills

People do not wish to find themselves burdened with costs of medical expenses they cannot meet. Still, it is possible to be involved in an accident or get sick, and in this case, insurance is not enough; people have to pay for their treatment themselves. When facing past due medical bills, take steps to control the hit to your credit through these methods.

Communicate with the providers - Most healthcare providers know that this is a tough reality and will be willing to discuss payment plans or even waive off some of the balance. Ask about options.
Go through the proper channels - Collection agencies purchase medical debts for a fraction of their true value. This should be used to pay for the bills in an agreement that they will not report to the credit bureaus or when given some kind of payment arrangement.
Tackle debts - When one is only making minimum payments on cards, pay off medical bills as they may be reported faster than other accounts.
Apply for financial aid - Many hospitals and clinics, have some form of financial aid for low-income earners. File petitions to demonstrate the need and possibly eliminate or reduce some bills.
Dispute inaccuracies - Sometimes medical debts may appear on your credit report when they should not, and you have the legal right to dispute such entries freely and boost your score.
Seek credit counseling - Non-profit credit counseling agencies offer education and assistance on feasible options, one of which is consolidating all medical bills into a single payment.

Protect Your Finances

Knowing how medical debt works can be helpful rather than detrimental if you are armed with the right information. While the doctors are more concerned with the patientsâ€™ health, you need to be wary of their financial health as well. More people file for bankruptcy due to medical problems than anything else so being preventive makes sense. Being able to stay informed of your credit and thus being able to deal with consumer protection laws regulating the reporting of medical debts empowers you.

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