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Does Medical Debt Affect Your Credit Score?

Does Medical Debt Affect Your Credit Score?

Impact of Medical Debt on Your Credit Score

Medical debt is a common financial burden that many individuals face, but does it have an impact on your credit score? Approximately 14 million people (6% of adults) in the U.S. owe over $1,000 in medical debt, and about 3 million people (1% of adults) owe medical debt of more than $10,000. [1]

For those struggling with unexpected medical expenses, the idea of a credit score taking a hit can be a major source of stress.

While medical debt is treated differently from other forms of debt, understanding how it can affect your financial standing.

What is Medical Debt?

Medical debt refers to money owed for medical services and treatments that have not been paid for at the time of service. This can include a variety of healthcare-related costs, such as hospital bills, doctor’s fees, surgeries, prescription medications, diagnostic tests, and emergency care.

Essentially, it’s any outstanding balance from medical treatment that you are financially responsible for, whether due to insurance coverage gaps or lack of insurance altogether.

Examples of medical debt might include:

How Medical Debt Differs from Other Types of Debt?

While medical debt is still a form of debt, it has unique characteristics that set it apart from traditional debts like credit cards, personal loans, or mortgages. Some key differences include:

How Medical Debt Differs from Other Types of Debt?

How Medical Debt Affects Your Credit Score

Credit scores are numerical representations of a person’s creditworthiness, determined by major credit bureaus (Equifax, Experian, and TransUnion). The two most common credit scoring models used are FICO and VantageScore. [2] The FICO scores, for example, are calculated based on factors such as:

Role of Medical Debt in Your Credit Report

Medical debt is not immediately reported to the credit bureaus. It generally takes 180 days of non-payment before it is sent to collections and appears on your credit report. This grace period allows time for individuals to resolve any billing issues or settle the debt without impacting their credit score.

However, if medical debt does make it to collections and appears on your credit report, it can significantly hurt your credit score.

This will primarily affect your Payment History (since the debt is unpaid) and Amounts Owed (since you now have additional debt listed). If the debt is resolved and paid off, the impact can diminish, but it can still stay on your credit report for up to seven years.

Role of Medical Debt in Your Credit Report

When Medical Debt Gets Reported to Credit Bureaus

Medical debt does not immediately impact your credit score when you first incur it. Credit bureaus generally won’t report unpaid medical debt until it has been delinquent for 180 days.

This grace period is designed to give you time to address any billing disputes, arrange payment plans, or even apply for financial assistance programs through healthcare providers before the debt gets reported to collections.

However, if the debt remains unpaid after 180 days, healthcare providers or collections agencies may send it to a collection agency, which can then report it to the credit bureaus.

At this point, the medical debt can show up on your credit report, affecting your Payment History and Amounts Owed categories, both of which are key factors in determining your credit score.

What Happens if Medical Debt is Sent to Collections?

When medical debt is sent to collections, it becomes a major red flag for your credit score. The collection account will typically stay on your credit report for up to seven years, even if you pay the debt later. This negative mark can reduce your score, making it harder to qualify for loans, mortgages, or credit cards with favorable interest rates.

Once the debt is paid off or settled, the account will still remain on your credit report for a while, but it will be marked as “paid” or “settled.” This can help reduce some of the negative impact on your credit score, though the account’s presence will still affect your creditworthiness until it naturally drops off your credit report after seven years.

Medical Debt vs. Other Collections

While medical debt collections affect your credit report similarly to other types of collections, there are some important distinctions:

In contrast, other types of collections (like unpaid credit card debt or loans) are typically reported to the credit bureaus much sooner and do not benefit from the same grace periods or special treatment in some scoring models.

What to Do If You Have Unpaid Medical Debt

If you have unpaid medical debt that may affect your credit, there are a few strategies to consider:

By understanding when medical debt gets reported and taking steps to address it early, you can minimize its long-term effects on your credit score and financial health.

What to Do If You Have Unpaid Medical Debt

If you’re struggling with overwhelming debt, contact our experienced bankruptcy attorneys today at Richard West to explore your options and regain financial freedom.

Sources:

[1] The burden of medical debt in the United States – Peterson-KFF Health System Tracker. (2024, February 12). Peterson-KFF Health System Tracker. https://www.healthsystemtracker.org/brief/the-burden-of-medical-debt-in-the-united-states/

[2] myFICO. (2024, December 16). What’s in my FICO® Scores? myFICO. https://www.myfico.com/credit-education/whats-in-your-credit-score

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