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Still, if an aggressive hospital or physician turns your medical account over to collections and gets a court judgment against you, then that public record would wind up on your credit report.

So the best way to proceed if you have large medical bills is to try to work out a monthly repayment plan. If negotiating a deal is too stressful for you, or if you find it difficult to make sense out of a mountain of hospital bills, you can also try enlisting the help of organizations such as the Access Project or Medical Billing Advocates of America.

They offer free and low-cost programs that guide you through the maze of negotiating with insurance companies, medical providers and public programs to resolve your medical debt.

Don't stress unnecessarily

Even in seemingly disastrous scenarios — such as foreclosure — the damage to your credit rating may not be as long-lasting as you think.

Jon Maddux, CEO of YouWalkAway.com, which helps people considering strategic defaults of their mortgages, dismisses some common advice from planners. Claims such as "foreclosure will destroy or decimate your credit" are scare tactics, he says, and simply aren't true.

"Due to the nature of how credit scoring works, I prefer to describe the effects of foreclosure as wounding one's credit. The wounds will heal as long as the borrower continues to keep other lines of credit current," Maddux says.

Clients of YouWalkAway.com who've gone through foreclosure and short sales, he says, typically see their credit scores rebound in a year or so to previous levels — providing they manage all other credit wisely.

"Paying all other bills on time and paying off your credit card each month are all important steps to take toward rebuilding your credit after defaulting on your mortgage," Maddux says.

A 2011 study by TransUnion, "Life After Foreclosure and Hidden Opportunities," supports Maddux's assertion. TransUnion looked at people it classified as "mortgage only" defaulters and found that, over a 12- to 17-month period, their scores "tend to 'rebound' faster than for those with multiple delinquencies."

Still, no one is suggesting that foreclosure won't have a significant impact on your credit rating. It will. But the extent of the damage, experts say, will largely depend on where your credit score was prior to foreclosure, and how you handle other bills.

Officials from FICO, the credit-scoring company, say that a foreclosure usually initially lowers a person's credit score by 85 to 160 points. The better your credit score to begin with, the larger the impact.

Lynnette Khalfani-Cox, The Money Coach(R), is a personal finance expert, television and radio personality, and the author of numerous books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.

Published: September 21, 2012

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