July 1, 2023

How Unpaid Medical Bills Affect Your Credit

While your medical history is certainly not a part of your credit report, unpaid medical debts that go to collections can go onto your report and affect your credit score.

While your medical history is certainly not a part of your credit report, unpaid medical debts that go to collections can go onto your report and affect your credit score. Collections marks on your credit report can take up to 50 points off your credit score and last up to 7 years.

However, there is good news – credit agencies now weight medical debt less than previously, new laws require collections agencies to wait at least 180 days before reporting medical debt, and there are multiple things you can do to fix any collections marks on your credit.

How Collections Affects Credit

As mentioned above, collections marks can take up to 50 points off your credit and negative info can remain on your credit report for up to 7 years, though the impact of those negative marks lessons over time.

However, not all debt in collections is weighed equally. Both Vantage and FICO have updated their scoring formulas to reduces the effect that medical debt has on your credit score (FICO and Vantage are the two most widely used algorithms to determine your credit score).

Specifically both now weight unpaid medical debt in collections less heavily than other types of debt in collections. Additionally, the new FICO scoring system now ignores collections marks that have been paid (the old Vantage system already ignored such accounts).

So, while unpaid collections affect your credit for up to 7 years – paying off these accounts can remove the negative impact on your credit score. Additionally, even unpaid collections accounts for medical bills will have less of a negative impact on your credit score than previously.

How much time you have

A new law requires that credit reporting agencies now have to wait 180 days before putting an unpaid medical bill on your credit report (previously this could go on credit report as soon as unpaid bill was placed on credit report). Since collections agencies are usually the entities that report debts to credit agencies, and not hospitals and other healthcare providers, this in effect means you have 6 months after the bill goes to collections (not after it’s due) before it affects your credit.

In addition, usually hospitals and healthcare providers will allow a bill to ‘age’ for 180 days after a payment is late to turn over to collections. However – this isn’t a requirement – some hospitals will do this as soon as 60 days post due. They do this because it’s better to collect a bill, even late, than turn it over to collections – as they have to pay a fee to the collections agency.

Almost all bills sent by healthcare providers are net 30 – that is you have 30 days from the date of the bill before it’s ‘due’.

So in sum, we have the following 3 steps from the time a healthcare bill is issued unit it shows up on your credit report:

  • Healthcare Provider net 30 (1 month)
  • Healthcare Provider aging (2-6 months)
  • Mandatory report waiting period (6 months)

This means that you have anywhere from 9 to 13 months from the bill date of issue before your credit report takes a hit (or 8 to 12 months from the bill due date).

Use this time to reduce your bill as much as possible. Check out our 5 steps to reducing your medical bills guide, do your own research, or hire a medical billing advocate. The most important thing is not to let the bill sit there and then scramble at the last minute to get everything solved.

And, if you do end up with a medical bill debt in collections on your credit report – don’t panic. It’s possible to have the negative effects greatly lessened (or removed entirely) after negotiating it down and paying it off.

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