Does Medical Bills Affect Your Credit Score?

Is Medical Collection Bad for Your Credit Rating

Let me tell you why credit score is such an important factor in your financial life. A credit score is used by lenders to decide if you are worthy of being provided an opportunity to borrow money and at what rate. Credit scores are also another factor that most landlords use in determining whether or not to rent to an applicant. So with this in mind, you wish to maintain a high credit rating as much as possible. However, if you are among the citizens whose credit has been affected by adverse circumstances such as unexpected medical bills, then it becomes tricky.

How Medical Collections Affect Your Credit Ratings?

Collection accounts that relate to medical debts may appear on the credit reports and can affect the credit score. Collections accounts hurt your credit in a couple of key ways.

They reduce the credit scores that you hold. Those accounts that are taken to collections are negative remarks that reduce the credit scores. Their severity varies depending on the scoring system applied to determine the severity of the injury. However, in most cases, collections are detrimental to credit history which is more than 35% of widely utilized FICO credit scores.
They remain on your reports for many years. All collections account to drop off your credit files after seven years from the time when the debt entered the delinquent status and was not paid. This can be true at any time, whether the account is sent to collections in the middle of the year or before the end of the year. Thus, medical collections could stay on your credit for almost 2100 days if you do not pay or negotiate for their removal.

New FICO Score Policy on Medical Bills

The major credit scoring agency, FICO, understood that it was different with medical bills debts. Health complications are unpredictable and may affect anyone, resulting in increased expenses on medical costs.

FICO recently revealed new policies regarding medical debts on credit reports. These policies help to reduce the undesirable effects of medical collections on consumer scoring.

Key changes in FICO scoring for medical debt include

Excludes all paid medical collections – The FICO scores will not take into account any medical bills that were sent to collections but which you later paid. When it comes to your score, they do not count at all.
New treatment of unpaid medical bills – If any unpaid medical bills have been sent to collections, then FICO will consider the medical collections to be less unfavorable than any other kinds of collections.
Skipping any medical collections for a longer period- FICO scores will exclude any medical collections recorded for less than one year. However, from the time they reach one year of age, they can start contributing to the score in your favor.
Having a shorter lookback period – Medical collections will affect the FICO score for only the last five years the collections first became delinquent. Afterward, the medical collection ceases to hurt your credit profile even if unpaid. Non-medical collection information remains part of credit scores for the normal range of seven years.

Medical debt is something that many people find themselves struggling with at one point or another and hence, it is always important to know what to do when faced with such a situation.

If you have medical bills that go to collections, you will most definitely have these affect your credit scores and credit history. However, we also have several measures to minimize this damage and rebuild credit history when possible.

If hit with high medical bills, consider taking the following actions

Call the provider for an early payment plan or write to the provider to have the bill reduced or waived on account of financial difficulties. Most doctors are willing to discuss their situations with patients with large bills.
If the debt is with a collection agency, you can try to negotiate to pay the debt or to pay an amount that you can afford in installments. Passing the account from the unpaid to the settled collections category will assist in preventing further credit damage.
Always review your credit reports and contest any issues regarding your medical debt and collections. They affect a credit standing; therefore, it is essential to dispute them to rebuild your credit history.
Also, you can sign up for free when any collections are being reported to your credit, so you can know when another one has been added. One way of avoiding credit score reductions is by taking early measures to deal with medical collections.

FICO plans to change the scoring models gradually over the next few years, so most consumers should not feel the brunt of unpaid medical bills affecting their credit ratings. However, if your health expenses go to a collection, it is still detrimental to your credit, and it can be difficult to qualify for financing.

If experiencing large bills, you need to check your credit often and take the necessary action to clear your credit report of any unpaid debts or mistakes. Gradually, minimizing your medical collections has a positive impact on rebuilding and enhancing your credit score.

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