A serious illness or injury can not only impact your physical and mental well-being, it can also hurt your credit score. Medical bills simply can’t be avoided in many situations, and sometimes, the amount you are expected to pay is quite high. Know you’re not alone. Medical debt has continually been the leading cause of bankruptcy in the United States. It’s not unheard of for up to 20 percent of Americans to hear from medical debt collectors in a given year.
Those numbers are staggering.
If you have unpaid medical bills piling up on your financial table, it’s important to understand when and how this will affect your credit score. Here’s all you need to know.
Unpaid Medical Bills Aren’t Factored Into Your Credit Score Right Away
Generally speaking, healthcare providers don’t report payments–or missed payments–to credit bureaus, as they usually have no direct relationship with them. If you are having trouble paying off the bill, and your healthcare provider does turn the bill over to an agency, it will then be calculated into your credit score. It will negatively affect your payment history, which makes up 35 percent of your FICO® score, and your current loan and credit utilization ratio, which makes up 30 percent of your score.
So, if you have an unpaid bill, what you need to look out for–and ask about–is when that bill will be handed to a collection agency. Because then it will start hurting your credit. Note that while hospitals and healthcare institutions give collection agencies more business than financial companies, that doesn’t mean they contact the agency if you’ve missed one or two payments. You usually get a reasonable amount of time, though that isn’t always the case with certain medical providers. The hospital or medical establishment could give you anywhere from a few months to a few years to pay the bill. Thankfully, the Healthcare Financial Management Association (HFMA) and ACA International are working to establish standards for medical debt collection in an effort for more transparency and less unwelcome surprises.
In order to avoid letting an unpaid medical bill go to collections, talk with your medical provider’s finance department immediately after getting the bill. Ask about financial assistance and attempt to work out a payment plan that fits your current economic situation.
How Much and for How Long Does an Unpaid Medical Bill Hurt Credit?
Depending on your current financial situation and the amount you have left to pay on the health bill, your score could be affected by as little as a few points to 100 or more points once it’s reported to a credit bureau, according to Anthony Sprauve, a FICO.com spokesperson. That’s a lot, and that will certainly impact your ability to get affordable loans and funding from financial institutions.
There is some good news, though. If the amount is less than $100, it will be ignored by FICO®. Moreover, while an incident like an unpaid medical bill being handed over to collections will stay on your credit for seven years, the impact lessens over time. If you practice good financial habits after the incident, such as paying off credit cards in full each month and cutting down on other debt, your score will also rise back up more quickly.
Additionally, although the FICO 9 credit score is not widely used by lending firms yet, it does not weigh unpaid medical bills as heavily. Such credit scores could become more mainstream in the future. Law changes in the future from government agencies like the IRS could also place limits on a medical institution’s right to turn over bills to debt collection firms, especially nonprofit healthcare providers.
What If the Unpaid Medical Bill Was Actually Paid, And Still Reported to Collections?
Healthcare systems are far behind financial institutions when it comes to tracking payments and keeping accurate records. There is simply too much disconnect between departments and systems, and sometimes this leads to a paid bill being mistakenly tagged as unpaid, and subsequently being reported to collections. It could also lead to a wrong charge and higher bill.
This is why Congress has been working to pass medical debt acts that give patients time to address inaccuracies before credit scores are hurt. If your unpaid medical bill is already being reported to credit bureaus, and you believe there is an inaccuracy, don’t throw your hands up in defeat. Take the following steps:
- Gather documentation that proves the services rendered to you and/or the payments you’ve made.
- Write a dispute letter to all three credit bureaus.
- Stay in contact with those credit bureaus and your medical provider, and be ready to submit other evidence if requested.
While it you may not win this dispute, it’s certainly worth it. If you prove you’ve paid the bill or you’ve been wrongly charged extra, you’ll get the incident waived from your credit report.
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Keep on Fighting
Even if an unpaid medical bill has already harmed your financial health, know that the pain can be ended. Start by practicing good money habits, and, if that bill is still looming over you, try to negotiate payments and/or assistance. A billing advocate or lawyer can also help you negotiate bills and perhaps lower the amount to be paid.
Also, if you wish to see a higher score on your credit report more quickly, credit repair companies can help. Ovation Credit, for instance, can help clean up discrepancies and outdated information on your credit report, which will help boost your score in no time.