Do Medical Bills Affect Your Credit? A Quick Guide
Dealing with medical expenses is stressful enough that you might be tempted to ignore them altogether. But be careful because they could affect your credit score.
April 19, 2022
Dealing with health problems or a medical emergency can be extremely stressful, especially when you’re left with exorbitantly high bills afterward. When figuring out how to deal with the situation, one of your questions may be: “Do medical bills affect credit?”
The answer is yes, but not necessarily how you’d expect. To learn how this complex process works, you’ll need an understanding of credit scoring and how healthcare providers treat your debt. We’ll go through:
Healthcare providers and debt
The overall impact on your credit
Give you some suggestions for tackling that debt as quickly as possible
How credit scoring works
Before you can understand the impact medical bills have on credit, you need to know how the credit scoring process works for all types of lending.
First, lenders report your borrowing activity to the credit bureaus (i.e., TransUnion, Equifax and Experian). These bureaus have the job of adding this data to your credit report, which summarizes your history and behavior as a borrower.
Then, the credit scoring agencies (i.e., FICO and VantageScore) use this information to update your credit score, a number that indicates your creditworthiness as a borrower.
Payment history: Whether you’ve made on-time payments for your debt
Amounts owed: The total amount of debt you have and your credit utilization ratio
Length of credit history: How long your credit accounts have been open for
New credit: Any applications for new credit you’ve made recently
Credit mix: The different types of debt and loans you hold
The factors outlined above are also considered in this order of importance, meaning that credit mix holds less weight than payment history.
How medical bills affect credit scoring factors
So, how do medical bills fit into the picture?
Medical bills primarily affect your credit through payment history. If you fail to pay your medical bills, it will negatively impact your payment history. That’s bad news considering it’s the most important factor in your credit score.
But hold on a second because although we’ve said that lenders report your borrowing activity to credit bureaus, things work differently in the medical world. Most healthcare providers don’t follow this process. As a result, medical debt shouldn’t impact your credit report or credit score (as long as you owe it directly to a healthcare company).
So, does that mean you can forget about your bills and move on with your life? Not exactly.
If you don’t pay your medical bills, the medical provider will eventually pass on your payment obligation to a debt collection agency, at which point everything changes.
What to expect from debt collection
While healthcare providers generally don’t have contact with credit bureaus, debt collectors do, which could be bad news for your credit score.
However, there’s some good news: There’s a waiting period, or grace period, of 180 days before the major credit bureaus include medical debt on your credit report. What’s more, starting on July 1, 2022, the credit bureaus are increasing this grace period from six months to one year.
The move gives borrowers have more time to work with healthcare and insurance companies to pay their bills before facing negative consequences. It’s also common for insurance companies to be slow in making payment arrangements with healthcare providers, leading to errors on medical bills. So this grace period provides time to work things out.
Currently, medical debt can remain on your credit report for up to seven years (even after payment). Yet this is set to change in July 2022. The three credit bureaus have decided that medical debts that have been paid off or are worth less than $500 won’t show up on your credit report.
How do credit scoring agencies handle medical debt?
When you pay off a medical bill, your credit report should update to reflect it. However, this doesn’t directly translate to an increase in your credit score. There are many complex factors at play, so paying off collections debt could increase, decrease or have no impact on your credit score.
There are also different credit scoring models used to derive your credit score, and other lenders use different models.
Some scoring models — such as FICO 9 and VantageScore 3.0 and 4.0 (all newer models) — don’t include medical collection accounts you’ve already paid when calculating your credit score. As a result, paying your debt off should increase your credit score.
These scoring models also give less weight to medical collections. This means your medical debt doesn’t factor into your score as much as your other types of debt.
Meanwhile, other credit scoring models(such as earlier versions of the FICO model, like FICO 8) currently continue to account for medical debt after you’ve paid it off. They also view all types of debt similarly and weigh them the same.
How to tackle unpaid medical bills
If you’re currently struggling with medical bills you can’t pay, there are a few ways to turn your situation around.
In some cases, you may be able to negotiate the bill with your health provider to reduce the amount you owe. Many people assume this isn’t an option for medical bills, but healthcare providers prefer receiving something from you than nothing at all. If you can afford it, try offering to pay a lower lump sum than the total loan value.
Alternatively, you could ask to set up a payment plan to make the debt more manageable. However, this could mean you pay more if you accumulate interest on the amount you owe while paying it off (although many payment plans are interest-free).
Look for errors
Instead of blindly accepting whatever your medical bill says, carefully examine the document to ensure everything is accurate. The last thing you want is to pay more than what you owe. It can be helpful to request an itemized bill so you can understand all the different line items.
If something doesn’t look right, first, contact the collection agency or medical provider directly. Alternatively, you can get the credit bureaus to file a dispute, which can help remove an entry from your credit report. You’ll need evidence for this to work, such as records from the collection agency.
However, remember that each credit bureau is an independent entity, so you’ll need to file a separate claim with each one of them.
Ideally, you’d be able to budget and reorganize your finances to a point where you could pay off your debt, but this isn’t always realistic. Instead, you could consider seeking help from a third party.
If you have some financial resources at your disposal, you could consider hiring a medical billing advocate to work with your healthcare company, saving you money. An advocate can help with negotiating bills, looking for errors and making sure your insurance company pays its bills (along with many other tasks).
There are also various programs and nonprofit organizations trying to help Americans reduce healthcare costs, especially those on a low income. For example, the HealthWell Foundation is an independent charity aiming to help the underinsured.
Don’t let medical bills get you down
Although there are some complexities regarding how medical bills can affect your credit score, one thing is clear: Your safest bet is to try and pay off your debt as soon as possible.
If you’re worried about your credit score and personal finances, medical debt may not be the only thing standing in your way. If you need to start tackling credit card debt, consider the Tally† credit card repayment app. The app consolidates your higher-interest credit card balances into one lower-interest line of credit, making it easier for you to start getting your credit scoring factors on track.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.