Can Medical Bills Affect Your Credit Report?

The economy of today is driven by borrowing and debt. That can be a good thing if you need an immediate line of credit for a specific purchase or just an easier cash flow. However, managing all the aspects of your various types of debt is not easy.

For instance, medical bills that you don’t pay can harm your borrowing power and affect the credit rating that you have. If you want to purchase a property later on – this can be a problem. That’s why we’ll get into the specifics of how medical bills affect your credit report. We’ll dive right into the meat of things, you can check it out below.

Medical Bills and Credit

When it comes to credit reports and scoring, the single most decisive factor found within is your payment history. In other words, it’s important to continuously pay all of your bills in a timely manner. If we’re talking about huge healthcare payments, these bills can be nasty if you hold off on paying them. That can lead to protracted negotiations between you and your insurers and healthcare providers — the entire process can impact your credit score significantly.

It should be noted that medical debt has no direct effect on the credit score — not unless someone provides the relevant information to your credit bureau. Medical providers and hospitals almost never report these outstanding debts directly.

However, medical bills still count among important credit score factors. Unfortunately, healthcare providers and hospitals may report your debt to a number of collection agencies. In turn, these will immediately report this to the relevant authorities. In fact, a 2018 survey showed that a third of all US adults who had outstanding medical care bills had to deal with one of the many collection agencies.

Consumer Protection

Luckily, all types of debt are far from being the same. Big credit bureaus, such as TransUnion or Equifax, don’t treat every delinquent account the same way. There is more protection for consumers who have medical debt than other types of credit.

For one, there’s an increased waiting period. By default, you’ve got a grace period of 180 days. Over that time, the medical debt can’t appear on anyone’s credit report. This allows people to pay the debt, or resolve any leftover disputes that they might have with insurance companies or medical providers. Before those 180 days are out, medical bills won’t have any impact on your credit report and score.

Also, the removal of medical debt is expedite compared to other types of debt. For instance, once other types of debt find their way onto your credit report — they usually stay there for no less than seven years. And that happens even if you pay the debt eventually. However, debt from medical expenses is immediately removed from the credit report once it’s been paid.

This rule is a recent one, having been instituted back in 2017. Its point is to reflect that having unpaid medical bills doesn’t mean that someone has credit risk — while a mortgage or credit card debt definitely is. On the other hand, medical expenses stem from force major circumstances that are beyond the control of the consumer.

The financial experts who work on improving the credit scoring institutions and rules recognize that illness or an accident is something that can easily happen to anyone. Healthcare bills don’t reflect the purchasing and money-handling habits of people — which is why they should be distinct from other lines of credit.

For instance, the latest iteration of the FICO system of credit scoring recognizes this important distinction. This is the system utilized by a majority of lenders, so it’s a monumental institution when it comes to the trustworthiness of customers and how the financial system perceives them. Since FICO 9, medical debt is less impacting to your score compared to different types of liabilities.

Issues With Medical Debt

Naturally, we shouldn’t forget that medical debt doesn’t disappear on its own. It’s still debt, and it’s still money you have to pay — which means it will affect your borrowing abilities at some point or another. If a collection agency becomes aware of your medical bill, its efforts to collect will impact your credit score.

And while that is a lesser effect than debt would have directly, it will still result in a lower credit score. Even tiny disruptions in your credit score can mean the difference between being able to obtain further credit or borrow money. Sure, you will still be able to get a loan — but the question is, at what rate?

Also, credit reports come into play when major corporations interview job candidates. This is especially true for financial institutions. It’s only logical, really — if you can’t handle your own expenses, you can’t be trusted to work in a bank or handle other people’s money.

Plus, we should note that medical debt is only given less weight in the latest version of FICO. And there are more than enough creditors that use the older iterations of the FICO system, where medical bills still have a hefty impact.

Once a hospital or a specific doctor uses a collection agency in order to procure payment from you, expect to be bothered via emails, letters, and calls all with the purpose of extracting the debt from you.

Much like personal loans and credit cards, unpaid medical bills are viewed as a civil debt. This means that not paying them doesn’t constitute a crime, but you can still be sued by collection agencies or your direct creditors in civil court. They could demand a percentage of your wages until the debt is paid, or property liens.

We hope that this guide was useful to you and that you’ve learned something new today about the ways medical bills can affect your credit report. Make sure that you are staying safe in these times we are going through and have a good one, guys!

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