Medical Debt & Your Credit Score

How to Keep Medical Debt From Appearing on Your Credit Report

You’re not alone if you have medical debt. According to the Federal Reserve, about 1 in 6 credit reports contain a medical debt collection account! Millions of American consumers say a medical collection harmed their credit score in the last year.

Medical debt’s impact on credit scores is widespread — and unfair according to consumer advocate. Congress is considering changing the way medical debt is reported on credit reports and treated by credit scoring models and the CFPB relased an in-depth study about medical collections.

Delinquencies cause great harm to a consumer’s credit score. Some Congressional representatives are considering changing the law so any medical collections accounts that are paid off, or settled and brought to a $0 balance, will be removed from your credit report.

For consumers with lower credit scores, especially those on the borderline between good and not good credit, a ten- to 22-point difference can affect their interest rates and ability to borrow credit. Over time, a score harmed by a medical collection account could end up costing a consumer tens of thousands of dollars on large loans like home mortgages.

Medical debt is different from credit card or other consumer debt because it is usually a result of an unexpected or one-time event, and may be caused by an insurance company not paying a claim in a timely manner. Consumer advocates argue the appearance of a medical debt on a credit report is not predictive of future delinquencies, and therefore should not be reported or scored.

Credit Score & Medical Debt Today

Congress may not agree to change the Fair Credit Reporting Act to help consumers who have a problem with medical debt on their credit reports. Until Congress acts, you need to know you can do today to prevent a medical debt from harming your credit report and credit score?

Hospitals and other medical providers usually don’t report delinquent accounts to the consumer credit reporting.

If you take on medical debt and care about your credit report, don’t let the account become so delinquent that the medical provider sends the account to a collection agent.

Debt collectors, on the other hand, usually report your delinquent accounts to the credit bureaus quickly.

You can avoid your medical debt becoming a collections account by negotiating a payment plan with the medical service provider. A payment plan is a great solution because it avoids the debt appearing on your credit report.

Hospitals, doctors’ offices, and other medical providers are often flexible about working out payment. After all, they want your money, to keep you as a patient, and to avoid sending your account to a collection agent.

Even a small medical debt left unresolved can spin out of control.

A collections account appearing on your credit report harms your score, but you'll do further, more serious damage, if you end up with a judgment against you for the debt.

If you are sued, try to negotiate an out-of-court settlement to resolve the debt before your case goes to trial. Once a civil judgment appears on your credit report, it will have a strongly negative impact on your credit score.

1. Work out a payment plan with the medical service provider
2. If the medical debt has already moved to a collection agent, negotiate a settlement to avoid a possible lawsuit
3. If you are sued, negotiate an out-of-court settlement to avoid a trial and judgment