How Does Medical Debt Affect Your Credit Score?

Medical debt can tank your credit score
Image Source: Flickr User Claus Rebler


Medical debt is unique among other types of debt because of the complications of the insurance intermediary. This is also debt you generally don’t get into voluntarily unlike a mortgage, car loan, or credit card bill. Medical debt is a plague on the uninsured and insured alike thanks to changes in coverage that now require hefty deductibles and co-insurance for many consumers. Despite advances like the Affordable Care Act, medical debt continues to be a burden and, yes, it can lower your credit score.

How Medical Bills Drag Your Credit Score Down

Unlike a standard credit card bill or car payment that are reported monthly on your credit report, medical bills don’t automatically report. Medical practitioners don’t report patients that are a few days or weeks behind on a bill. However, once a bill has been outstanding for a few months, the medical provider will generally hand it over to a debt collector and they will report the delinquent debt to one (or all) of the three U.S. credit agencies – TransUnion, Equifax, and Experian.

What If Your Insurance Owes the Bill?

Even if your insurance provider owes the bill, that doesn’t mean they will pay up promptly. The bottom line is when you accept treatment, you sign an agreement saying you are responsible for the cost of the procedure, treatment, etc. There is usually fine print that says the provider will file the insurance claim but that comes with the caveat that the debt is still yours. That means you can be tangling with your insurance company who is delaying payment and the debt winds up on your credit score, dragging it down.

How Many People Have Unpaid Medical Debt?

According to ConsumerFinance gov, nearly one-third of consumers have debt in “collections,” meaning it’s past due and is being actively pursued by a debt collection agency or collection arm of the original creditor. Of all debt in collections, more than half of it is medical debt. That equates to nearly 20% of consumers or more than 73 million Americans who are seeing damage to their credit score because of medical debt in a delinquent and collections status.

Can You Remove Medical Debt From Your Credit Report?

If you have a medical bill that’s reported for debt collections, it can turn into a nightmare. It’s doubly frustrating when you don’t owe the medical bill yet it winds up on your credit report. Once the debt goes into the collections stage, even if you or your insurance firm pays it, the collection entry will stay on your credit report for seven years or more from the date the bill went delinquent. The collection agency doesn’t have to remove it even if you pay the debt, so you may be stuck.

Even If You Pay, Medical Debt Can Ravage Your Credit Report

The same report by ConsumerFinance showed that even if customers disputed an inaccurate delinquent medical debt account or paid it in full, creditors and collection agencies often fail to update the credit report to show that there is no balance owed. Credit card companies, mortgage lenders, and auto finance companies update accounts monthly, but those that don’t report regularly, such as collectors for medical debt, utilities, and cellular accounts, are more lax and can leave damaging info on your credit.

New Credit Score Models Will Change Things (Maybe)

Fair Isaac Corporation (FICO) has downgraded the weight of medical debt in its latest calculation, FICO 9, because they’ve undertaken studies that indicate overdue medical debt is not an accurate predictor of overall credit worthiness. However, many lenders don’t enroll in the latest score calculation subscription so this might not help you. VantageScore is also updating their latest score towards trending data which will put less emphasis on medical debt but, again, new models take a while to take hold.

Bankruptcy Can Help With Medical Debt

Because medical debt is unsecured debt, it can be wiped out totally with Chapter 7 bankruptcy and with Chapter 13 bankruptcy, unsecured debt is usually greatly diminished. For consumers mired in medical debt that insurance doesn’t cover, bankruptcy may be the answer. Many medical bankruptcies are triggered by a serious accident or illness (such as cancer) that skyrockets expenses while simultaneously decreasing income. Once recovered, the debt left over can be crippling. Bankruptcy can help.

After bankruptcy, when your medical debt is cleared up, along with other obligations, it’s time to focus on rebuilding your credit. That’s where Credit Score Keys comes in – and we’re ready to help you today. Call 919-495-2365.




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