August 13, 2023

Medical Collection Agencies Can Impact Your Credit Score

Generally speaking, hospitals and other medical establishments won’t report outstanding debt to credit reporting agencies them self because they risk ruining their reputation. But this doesn’t mean that unpaid medical bills can’t negatively impact your credit score. If your healthcare provider decides to refer your debt to a collection agency there’s a good chance those bills will show up on your credit report.

Not all medical collection agencies report delinquencies to the major reporting bureaus, but many do, so it can be a serious problem for those saddled with difficult medical debts. Removing a medical debt from your credit report is not easy. Unpaid medical debts less than $100 appear on your credit history but generally do not impact your credit score.

Why Are Medical Bills So Damaging?
Health care costs have been skyrocketing in recent years. It’s currently estimated that an average inpatient hospital stay in the United States costs over $22,000. Those with insurance may be spared the worst of these high costs, but everyone is at risk for high medical bills that they could have trouble paying.

Additionally, medical billing can be so complex that for conditions that require visits with multiple doctors, lab work, prescriptions, and other tests, it’s easy to lose track of all the outstanding bills that require payment. It’s not uncommon for people to have unpaid medical bills on their credit reports that they didn’t realize they missed.

It also happens that people sometimes forget how much their insurance company pays toward medical bills, and what percentage the individual must cover. Patients may accidentally fall into delinquency when they mistakenly assume their insurance company is paying or should pay a bill in its entirety.

In fact, even if you’re making payments on your account, any unpaid balance can still be sent to collections, particularly if you’re late on or you miss a scheduled payment.

What’s at issue is the way that unpaid medical bills are categorized in a credit score. They fall under the payment history portion of your credit report, the section that covers whether you pay general bills on time. This section is weighted more heavily than others, accounting for roughly 35% of your score. If you have a number of large, unpaid medical bills dragging this section down your final credit score can suffer.

What Can Be Done?
In answer to this growing problem, the major credit bureaus — Experian, Equifax and TransUnion — have instituted a standardized 180-day grace period before they’ll add any submitted delinquent medical bills to a person’s credit report. This gives patients plenty of time to work with their insurance company and the medical service provider to settle their accounts.

Medical debtors are afforded other considerations as well. Unlike other accounts, that stay on your report regardless of whether the debt is settled, credit agencies will also remove medical bills from a person’s credit report as long as they’re paid in full.

In recent years, many of the common methods for computing credit scores, including FICO and VantageScore have begun weighting unpaid medical less than other types of bills. FICO scores also don’t include medical bills that are under $100.

These steps help to alleviate some of the damage delinquent medical charges can cause to your credit score, but their continued existence on your report will always be a net negative. And because they’re included in your score for seven years unless they’re satisfied, your credit can be adversely impacted for quite some time.

But the reality is that, in the end, the patient is responsible for keeping medical bills off of their credit reports. You need to keep careful track of your bills, know what percentage you’re responsible for, and make certain they’re all paid on time. It can be a paperwork headache, but the alternative is much worse. Good record-keeping, timely payments, and open lines of communication in case of problems are the best ways to keep your credit report clear.

Similarly, the dental offices often hire a dental collection agency to recover their unpaid bills and those may appear on the patient’s credit report as well.

If you feel that you have an incorrect entry reported on your credit report, there are ways to fix it. The best way is to raise a dispute with credit bureaus. They have an obligation to investigate your dispute and provide an answer within 30 days.

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