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Does medical debt affect your credit score?

Does medical debt affect your credit score?

If you are dealing with a medical emergency, the last thing you want to worry about is whether the search for essential care will result in medical

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If you are dealing with a medical emergency, the last thing you want to worry about is whether the search for essential care will result in medical bills compromising your credit score. The reality, however, is that medical debt can affect your credit score and make it difficult for you to qualify for loans in the future.

Once you understand how medical debt can affect your credit, you’re better able to manage the potential impact of medical bills – even if you can not completely avoid them.


Does medical debt affect your credit score?

The 9% of Americans with some form of medical debt need to know how medical debt affects credit scores. So does anyone who might join them in the future.

Most healthcare providers do not report to the major credit bureaus, Equifax, Experian and Transunion. This means that medical debt does not immediately affect your credit score. However, if they sell your debt to a collection agency because you fail to pay the debt, it could appear on your credit reports and start damaging your credit score.


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How medical bills affect your credit

The good news for people in need of healthcare is that medical bills do not affect your credit as long as you pay them. If you get a bill and you or your health insurance company pay it before the due date, it will not appear on your credit report at all. This means that lenders will not see the medical bill.

However, if you fail to pay the bill, it turns into medical debt, which can start to affect your credit. Most healthcare providers will eventually sell your medical debt to a collection agency. These debt collectors buy debt below its face value, and then try to collect from the people who owe that debt.

Typically, having an account in collections means a big drop in your credit score. However, the three major credit reporting agencies offer some peace of mind if you have medical billing accounts. They will not start posting the information on your credit report until 180 days have passed, giving you time to pay your unpaid medical bills before they start damaging your credit.

Once the medical debt collection appears on your credit, your score is likely to drop. The size of the decrease will depend on the credit score models used to determine your credit score. Some models deal with medical expenses that make collections, like any other debt, while some will be more lenient due to the nature of the debt.

VantageScore, for example, gives less weight to these types of collection accounts. Newer FICO formulas completely ignore them after you pay for them.

If your medical debt appears on your credit report and you repay it, it may help your credit score but may not eliminate the impact of the collection account on your score.

Upcoming changes to medical collection credit reporting

Credit point agencies and lenders are constantly repeating credit point formulas to make it more accurate and fair for both lenders and consumers.

One upcoming change is that newer FICO and VantageScore formulas will ignore paid medical debt, which will remove the impact it has on your credit. This means that if you let a medical bill go to collections but pay it off later, it will be as if the bill did not go to collections at all. Some formulas will completely ignore small medical bills, paid or unpaid.

These changes are expected to take effect on July 1, 2022. However, some politicians and lenders are urging the Consumer Financial Protection Bureau (CFPB) to encourage credit bureaus to delay or stop this change. They argue that it is unfair to borrowers who can make incorrect determinations of borrowers’ creditworthiness.


How to prevent medical debt from hurting your credit

If you are facing medical debt, consider taking these steps to avoid affecting your credit history.

Carefully review invoices and PDOs

When you get medical care, you should receive invoices from the healthcare provider. If you have health insurance and the provider has filed a claim on your behalf, as is usually the case, you should also receive a statement of benefits (EOB).

The invoice describes the amount the hospital charged and what the cost is. The EOB comes from your insurance provider and describes what costs it covered.

Review the detailed account to make sure it accurately describes the care you received. Hospitals can make mistakes and can bill you for care you did not receive.

Then check the EOB to see if your insurance company has refused to pay for certain levies. Use this information to prepare for costs that you may have to cover.

Negotiate with suppliers

If you do not have insurance, or your insurance will not cover certain parts of your health care costs, you may not have to pay the sticker price for your care.

Talk to your healthcare provider’s billing office and try to negotiate. Many providers charge incredibly high amounts, and expect insurance agencies to pay those costs for much less. For example, they could charge $ 500 for a service they expect to be paid $ 100 for.

If you negotiate with your provider, they may be willing to significantly reduce the amount of your account.

Work out a payment plan

If you still can not afford to pay the full cost of your medical care in advance, talk to your healthcare provider about setting up a payment plan. Many providers are good at it, so there’s a good chance you’ll be able to convince yourself to accept monthly payments or another payment plan until your debt is paid off in full.

Contact a medical billing attorney

Medical bills can be complicated. Even if your account is set out, you may not fully understand what you are looking at.

Consider working with a medical billing attorney – someone with experience in handling medical bills and helping patients deal with the cost of healthcare. A medical billing attorney can be a hired professional or volunteer.

You can search online or in your local area for a lawyer who can help you. If you are covered by Medicare, you can also contact your state health insurance assistance program. You can expect to pay as much as $ 100 an hour or pay a percentage of the amount the lawyer will save you if you end up working with a paid service.

Your lawyer will go through your account with you and help you understand every bit of it. They can also help you work with your insurance agency to get all the benefits you deserve, especially if your insurer refuses to cover certain parts of the account. And they can help you negotiate with your healthcare provider or even help you draw up a payment plan.

Check your credit report regularly

Even if you have no problems with your credit, it’s a good idea to keep a close eye on your consumer credit reports. This gives you the chance to review your credit history and see anything that negatively affects your score.

The best way to check your credit report is to use annualcreditreport.com. This is a state-authorized website where you can get a copy of your credit report from each of the three major consumer credit bureaus. You are entitled to one free copy of your report from each credit bureau per year.

You can also use other free services to view your credit report. And many credit card issuers offer regular updates on your credit score and the factors that affect it.

Dispute for any credit report errors

When reviewing your credit report, you may find errors in it. This can be a record of a missed payment that you did not miss or even an account that does not belong to you.

Credit bureaus have processes to dispute these errors. If you find a medical fault on your report, contact your healthcare provider. They may be able to remove the information from your credit report. If they do not want or can not help, you can dispute it directly with the credit bureau. Removing these errors can significantly increase your score.

Keep your credit score healthy to move forward

Maintaining good creditworthiness requires constant effort. But it is the best way to ensure that you will qualify for credit at a competitive interest rate when you need it.

The most important thing you can do to keep your credit score high is to always make your payments and only borrow money when you need to. Together, your payment history and your overall debt represent two-thirds of your credit score, so focusing on these factors is the best way to help your credit.


Final Word

Your credit score may be the last thing you think of when dealing with a medical emergency. However, once you get the bills for your care, you need to figure out how to pay it off before it negatively affects your credit score.

This is important if you have any plans to apply for credit in the near future – perhaps a car loan or mortgage. So by avoiding medical debt negatively affecting your credit, you are more likely to stay on track to reach your long-term financial goals.

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