Do Medical Collections Affect Credit Score?

How Is Credit Score Defined?

Negative information such as unpaid medical bills that get sent to collections can affect your credit score and usually do so to a large extent. Medical collections can show up on credit reports and affect the credit score in the same way as other forms of collections.

How Medical Debt Affects Credit Scores?

It is considered a black mark on your credit whenever your account goes to the collections. Outright collections indicate that you were unable to pay back the debt as you had promised to do so to the creditor. This violates your contract and shows that you are a better credit risk out of the two parties. Medical collections are no exception to this.

Medical costs, unlike some other bills, are incurred directly by the patient, and the associated unpaid bill is then forwarded to collection agencies. Generally, you have about 90-120 days to pay a medical bill before it is considered delinquent and sent to collections. This is a perfect opportunity to either pay the debt in full or negotiate a repayment plan so that it never surfaces again on your credit.

Once a medical bill goes to collection, the primary provider removes it from its books and sells it to the collection agency at a very low price. It then turns the task of getting you to pay over to the collections agency. If you still do not resolve it, they can report it to the major consumer credit bureaus namely Equifax, Experian, and Trans Union.

Similar to most other collection accounts, medical collections do not expire and may remain on your credit report for up to 7 years from the time they were initially reported. As long as they remain, they influence your credit scores as follows.

Payment History

A medical collection suggests that the payments have been missed and this has a direct effect on this important credit score factor. Payment history is usually a determinant of 35%, of the FICO credit score.

Amounts Owed

You should know that having collections can be detrimental to your total debts, which constitute roughly 30% of your credit score. Collection may remain included in the credit utilization ratios even after the payment on the collection has been made.

Negative Credit Marks

They are specifically categorized as medical collections which are the negative credit information that lowers your scores. Creditor information such as collections can overpower positive credit reports.

Age of Credit History

New collections can reduce your average account age which equates to about 15 percent of credit scores when positive. Reducing this average age usually leads to lower scores.

Inquiries

There could be credit inquiries if the collection agency investigated your credit report when seeking to collect the debt. New inquiries above this level can indicate higher credit risk and slightly lower scores.

How Severe Is the Impact of Medical Collections on Credit?

It depends on the particular circumstances, but available studies indicate that both paid and unpaid medical collections cause significant damage to credit. For instance, the Consumer Financial Protection Bureau (CFPB) published a report on how collection account statuses impact VantageScore credit scores. They found:

Paid medical collections: Less up to 41 points Unpaid medical collections: Minus up to 91 points This is even more so when the company has multiple collections as this just worsens the situation. Despite making the payment, the average scores were still below those who had no collection records. Other forms of collection such as credit cards, utilities, and cell phones were also proven to negatively affect scores. Therefore, medical collections are not excluded or given special treatment in credit scoring models.

Measures to Overcome Medical Bills Collecting

Here are some tips on how to handle medical bills in collections to reduce the credit impacts.

Negotiate and Settle Collections Perhaps you can agree to pay the healthcare providers a smaller amount than the outstanding amount that they are owed. This will go a long way in reducing score damage and if there is a possibility of an agreement not to report the account. Paying also starts the 7 years on its count.

Dispute Inaccurate Medical Collections If you do not owe it or if there are mistakes made, immediately contest it with the collections agency and the credit bureaus. Enclose proof with your dispute letter and proceed to dispute monthly if necessary to get the account deleted.

Request Creditors to Delete Paid Entries Thus, paid medical collection can be reported under 2017 credit reporting industry changes to be removed from credit reports on request. Call the agency and request them to cancel the account because it is already happy.

Drive up Scores While Medical Collections Aging Measures such as; ensuring that all the current bills are paid in full and on time, the other credit card balances should be reduced and the applicant should refrain from applying for new credit. Over time, the effects of medical collections will decrease as the accounts remain outstanding for longer periods.

It is good to write goodwill letters to medical providers. A certified goodwill letter should be sent to the original provider to request that they remove the debt from the collections agency or to ensure that they do not forward it to the collections agency. Emphasize your willingness to pay but inability due to the medical situation.

The Bottom Line

Delinquent medical bills impact credit scores and they can only be rebuilt over years when the bills are paid off and are no longer in collections. Paying and handling them promptly minimizes the effects, while leaving or having several medical collections has a worse impact. Keep maintaining proper credit-building strategies and wait for the medical collections to age while waiting for the scores to rise gradually. It may also be necessary to negotiate with the providers to ascertain if there is a way in which they can agree to waive some of the debts before the collectors are involved.

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