Do medical bills affect your credit score? Yes, but don't panic. Unpaid medical bills aren't as detrimental as you might think. Here's the timeline from bill receipt to when the debt lands on your reports.
A medical bill—or a note from a collections agency for an unpaid medical bill—has just landed in your mailbox. Understandably, your heart races. You're wondering how that debt impacts your credit—and therefore your ability to rent an apartment, buy a future home or car, open a credit card, or even access a cell phone plan.
Well, take a deep breath. Medical debt is a different animal than other kinds of debt. And while it can seem like the scariest of debt animals, it's actually not such a big bad wolf in terms of how it affects your credit. Unpaid medical bill balances sent to collections take much longer to show up on your credit reports and are treated differently than other types of outstanding debt when factoring your credit scores.
"Medical debt is an unfortunately common scenario for many Americans," says Karen Selby, RN, a patient advocate at The Mesothelioma Center.
The stats on medical debt
Medical bill and debt issues plague 79 million people in the United States, according to a recent survey by The Commonwealth Fund. And according to newly released U.S. Census Bureau data, 19% of households carried some medical debt in 2017, with $2,000 as the median amount owed. That last stat is also on par with a recent Credit Karma analysis. About 21 million U.S. Credit Karma members hold $47 billion of medical debt in collections, which averages to about $2,200 of debt per member.
Time is on your side
When you first receive a medical bill, you have time to figure out how to pay it without it impacting your credit. "Most providers wait about six months before sending bills to collections," Selby says. "Some providers may start as early as three months if accounts remain unpaid."
If you receive a bill that you can't pay right away, Selby recommends working with the hospital or clinic's billing department to negotiate a payment plan. Payment plans are typically interest-free. So don't pay a balance with your high-interest credit card; you may even be able to negotiate a reduced fee.
If you completely ignore a bill, or don't adhere to the terms of a payment plan, then your health care provider might sell the debt to a collections agency. But you still have some time to figure out how to pay. The three credit reporting agencies—Experian, Equifax, and TransUnion—provide a six-month grace period (180 days) before posting medical debt that's in collections to credit reports.
"So the total amount of time it takes for medical bills to show up could be just under a year," says Mason Miranda, a credit industry specialist with Credit Card Insider.
Medical debt is different
If, after that grace period, you do have a medical bill show up on your credit reports, don't panic. "While the medical collection is considered a collection account, it doesn't have as much weight as other collection accounts," says Ben Reynolds, financial expert and CEO and founder of Sure Dividend. "In some instances, medical debts below $100 won't even appear on your credit history."
Medical debt in collections may negatively impact your credit scores, but it won't make them plummet. "Most credit scoring models don't rank medical debt very high on their list," Miranda explains. For that same reason, paying off medical debt won't dramatically skyrocket your scores either.
Most other forms of debt—like a mortgage, credit card, car loan, and more—should be treated with a higher priority than medical debt for payment, according to the National Consumer Law Center. Not paying other bills could result in negative life consequences, such as the loss of a home, or in worsening credit scores that make it difficult to obtain a mortgage or a lease agreement.
Payment plans with debt collectors
If your medical bill goes to a collections agency, you can typically work out a payment plan with the agency or even pay a smaller lump-sum settlement fee in lieu of the original debt total. Keep in mind that making payments and paying off a debt in collections will be considered more favorable on your credit reports than not paying a debt, according to Experian. The credit reporting agency also says that paying a settlement fee may be considered less favorable than paying the debt in full, either all at once or through a payment-plan arrangement.
But before you negotiate anything with a collections agency, ask for the agency to validate the debt—and to remove the debt if they cannot prove you owe it. According to the Federal Trade Commission, a debt collector then has to send you a written notice confirming how much money you owe, to whom you owe it, and what to do if you don't think it's your debt. After the agency sends validation, you can then ask for additional verification, such as a copy of the bill. Going through this process may eliminate the debt altogether.
As an added FYI, debt collectors cannot charge interest or other fees not included in the original medical bill. And medical bills are typically interest-free. Collections agencies also cannot charge you more than the original bill's amount.
Disputes with insurance
The three credit reporting agencies have agreed to remove from credit reports any medical debt that later gets paid by an insurance company. So if you feel your high bill is a result of a medical billing error or other issues, be sure to follow up with your health care provider so they can resubmit your bill to your insurance provider. And stay on top of any disputes you have with your insurance company.
After you've paid the debt
"When the debt is paid in full, make sure it is marked paid on your reports," Miranda says. "Although the collection account can remain on your credit reports for seven years, your credit scores may improve after paying." If after a couple of months, the account hasn't been marked as paid, you can file a dispute with each of the three credit reporting agencies to rectify the erroneous info.
But what happens if you never pay? Maybe nothing, but maybe something. "Medical collection debt drops off of credit reports after seven years," Selby explains, "but collection agencies may take legal action for unpaid bills after this period. As a last resort, filing for bankruptcy may be an option if there is no other way to pay your medical bills." In the event that you do file for bankruptcy, hospital debt is fully dischargeable.
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