Medical debt is not like other debt. It’s not something you usually want to incur. It’s not a fun purchase and it’s often costly and unexpected. Medical debt is also something that can quickly spiral out of control even if you have insurance coverage. High deductibles, costly co-insurance, and out-of-pocket expenses can turn a medical crisis into a financial disaster.
In some cases, medical debt that winds up on your credit report isn’t even your responsibility. Protracted debates with your insurance carrier while they fight about whether to cover an expense can put your credit score at risk just as much as an unpaid debt for which you were responsible. The medical provider holds you accountable, even for items that should be covered by insurance.
How long does it take for medical debt to be reported?
Medical providers are more patient than other creditors when it comes to initial collections and reporting. If your medical bill runs 30 days late, you won’t see it pop up on your Equifax report. Credit bureaus will now wait at least 180 days before they display an unpaid bill on your credit report and as part of your score calculation. That gives you time to resolve any billing issues and try to find the money to pay.
The real issue arises when the provider turns your medical debt over to a collection agency. Once the collections process starts, your credit report will reflect the debt and it can harm your score. Unpaid collections items can stay on your credit for years even though medical debt is subject to the same statute of limitations as other unsecured debt.
How does medical debt affect your credit score?
Recent changes to credit scoring models downplay the impact of medical debt on your score, even though they still display on your credit report. However, different scoring models treat medical debt differently. With older scoring models like the FICO 8, lenders treat all collections accounts the same and it doesn’t matter if it’s medical versus other lingering debt.
With newer scoring models like FICO 9, collections that have been paid are disregarded and it also puts less weight on medical debt. Your score will be affected, but not as much as it would for other negative credit items. Even though the collection account may remain on your report for years, it should have an increasingly diminished impact.
If a creditor uses older scoring models, the impact of medical debt on your ability to get new credit (or increase existing lines of credit) may be problematic. The wrinkle is that you likely won’t know which credit score model is used by a potential creditor. If you have lingering medical debt, doing some research online to see which lenders and card issuers use FICO 9 may be wise.
How to minimize the impact of medical debt on your credit score
Treat medical expenses like you would any other cost. If you have time to plan ahead, shop around for the most cost-effective treatment options if you’re paying out of pocket. Sometimes one doctor will charge hundreds of dollars less than another for the same service.
If your insurance will cover a treatment, talk to them before you schedule the appointment to verify the procedure and facility are covered under your plan. If your employer offers an FSA (flexible spending account) where you can use pre-tax dollars for co-pays and prescriptions, consider enrolling.
For covered costs, if your insurance doesn’t pay up promptly, become a squeaky wheel and badger them until they pay and keep your provider in the loop, so they know you’re working on it. For costs that aren’t covered, chip away at them by offering installment payments to avoid the account going into collections.
After bankruptcy, re-establishing your credit score is critical and keeping it in good standing offers many benefits. Don’t let medical debt throw you off track. Comparison shop, work with your insurer and provider to control cost, and consider tucking away an emergency savings fund to help cover any unexpected medical costs.
To work on improving your credit, check out Credit Score Keys today.