Like any debt, unpaid medical bills can hurt your credit rating and restrict your ability to borrow, buy property or get a job. Medical debt carries a particular risk: The most important factor in credit scoring is payment history — essentially, how regularly you pay bills on time. If you hold off paying large health care bills due to lengthy negotiations with providers and insurers, you might see your credit tarnished as a result.
Medical debt does not affect your credit score unless it’s reported to a credit bureau, and virtually no hospital or medical provider will report the debt directly, according to the National Consumer Law Center (NCLC). However, they might turn it over to a collection agency, which might report it. In a 2018 Consumer Reports survey of adults who had recently faced a large health care expense, nearly 30 percent said the bill had ended up with a collection agency. You might not even realize you’re delinquent until you hear from the collector.
Greater protections for consumers
The good news, relatively speaking, is that not all debt is created equal. The three major credit bureaus — Experian, Equifax and TransUnion — treat medical debt differently than other types of delinquent accounts, and consumers have greater protection against health care bills weighing down their credit. Key distinctions:
- Waiting period. The credit bureaus must wait 180 days before listing medical debt reported to them on your credit report. The grace period allows time to resolve disputes with medical providers or insurance companies before a bill is considered overdue and affects your credit score.
- Medical debt removal. Most collection accounts remain on your credit report for at least seven years, regardless of when or how the debt is repaid. Medical debt, however, is expunged if it has been paid or is being paid by insurance.
These rules, instituted in 2017, reflect a view that medical debt isn’t necessarily an indicator of credit risk. Unlike the decision to, say, buy a house or put a big purchase on a credit card, medical expenses often arise from circumstances the consumer does not control.
“I think there's recognition that these things can happen to any of us. We're all health care consumers,” says Jenifer Bosco, a staff attorney at the NCLC. “Anyone can have an accident or an unexpected illness, or just some unexpected health crisis.”
Credit scoring itself is evolving to acknowledge these distinctions. FICO Score 9, the latest version of the FICO scoring system most lenders use to assess a consumer’s creditworthiness, gives medical debt less weight than other liabilities. So does the latest version of VantageScore, the other main scoring model.
How medical debt can harm you
Medical debt is still debt, and any debt can ding your credit. On the FICO scale of 300 to 850, “a collection that hits a credit report could have an impact of up to 100 points,” says Nancy Bistritz-Balkan, vice president of communications and consumer education at Equifax.
Regardless of what caused it, a lower score will affect whether you can borrow money or obtain credit, and on what terms. For example, you might still be approved for a loan, but at a higher interest rate. Some employers check credit reports when weighing job candidates. And many lenders still use older versions of FICO in assessing a consumer’s credit risk, so there’s no guarantee any medical debt you might have will be given less weight.
If a doctor or hospital hires a collection agency to pursue payment, or sells your debt to a collection agency outright, you can expect a steady stream of phone calls, letters and emails demanding payment. The federal Fair Debt Collection Practices Act outlines your rights and options in dealing with collectors.
Like credit cards and personal loans, medical debt is considered “civil debt.” Nonpayment is not a crime, but a creditor or collection agency can sue you in civil court and seek liens on your property or garnishment of your wages. (Social Security and veterans benefits cannot be garnished for medical debt, but work income can be.)
Finally, remember that the 2017 changes in credit-reporting rules give you breathing room in the form of the 180-day grace period but do not provide a solution for all circumstances. “If you experience a long illness or sudden loss of employment, that may not be enough to give you a fair chance to get back on your feet," says Chuck Bell, programs director for Consumers Union, the advocacy arm of Consumer Reports.
Ways to minimize the impact
On occasion, a medical bill you never received, or even one you’ve already paid, makes its way into collections. If you believe a bill was sent to collections unfairly or prematurely, ask the medical provider to take it back so you can pay directly.
If you question whether you owe all or part of the bill, you can dispute the debt with the collection agency. You have 30 days from when you are notified of the collection to dispute the debt, and it’s best to do so in writing.
Once notified of your dispute, the agency must stop collection activity until it gives you proof that the debt is genuine. If it can’t do so, or won’t, the debt must come off your credit report. The federal Consumer Financial Protection Bureau has an online guide to disputing a debt and sample letters you can use to send to collectors.
Even if the debt is valid, there are still ways to minimize the damage to your credit:
- Don’t prioritize medical debt over other debt. Remember, medical debt is treated more leniently in credit scoring. As pressing as it may seem, “paying your medical bill instead of your mortgage or car loan will end up damaging your credit report a lot more than not paying your medical bill,” the NCLC says.
- Don’t trade medical debt for other kinds of debt. The NCLC also warns against borrowing or using a credit card to cover health care bills. Medical debt generally does not carry late fees and requires low or no interest payments. Compared to credit card debt, it takes longer to appear on your credit report and is less likely to result in a lawsuit.
- Keep trying to make a deal. “Either with your provider or with the collection agency, you could still try to negotiate a better price,” Bosco suggests. If you can’t get a reduction, talk with the collector about setting up a plan to pay in set installments over time. Working with the collection agency to retire the debt, in a way you can manage, can speed up your credit repair.