Unpaid Medical Bills Can Hurt Your Credit. Take Control.

Do medical bills affect your credit score? The short answer is yes, medical bills can affect your credit score if you don't pay them.

The U.S. spends more on health care per capita than any other country, according to a report by the Peterson-Kaiser Health System Tracker^[1]. So, it's not surprising that in 2014, the Consumer Financial Protection Bureau found^[2] that as many as 43 million people had overdue medical bills in their credit reports.

Getting behind on medical debt can endanger your financial health, especially if the late payments show up on your credit report. Similar to credit card debt, an unpaid medical bill can cause a good credit score to drop fast, and it’s not always easy to get it back.

How medical debt can impact your credit

If you have asked yourself, "can medical bills affect your credit score?" you are not alone. For those with unpaid medical expenses, the medical provider can sell it to a collection agency. The collections agency will typically report the unpaid bill to the credit reporting agencies as a collections account.

A collection account can have a significantly negative impact on your credit score, primarily because the most important factor in your credit score is your payment history. Once added to your report, a collection account can remain for seven years^[3].

You won’t necessarily see the account show on your credit report right away, though. Some good news is that in 2017, the three national credit bureaus, Experian, Equifax and TransUnion, agreed to give consumers a waiting period of 180 days before adding an unpaid medical debt to their credit reports^[4].

In other words, you have six months to pay your medical expenses or resolve insurance issues before a medical bill impacts your credit history.

If medical collections show up on your credit report after a late payment, there's no exact measure for how much damage it will do. For example, in FICO's most recent credit scoring model, FICO 9 ^[5], medical collections debt doesn't hurt your FICO score as much as other collections debts.

But lenders or other consumers of the credit bureaus' reports aren’t required to update to use new credit scoring models, and many of them still use earlier models that treat medical and non-medical debts the same.

As such, it's essential that you do everything you can to pay your medical bills before the 180-day waiting period ends. A single late payment to your lender can have an impact on your overall credit history.

Isn’t this a HIPAA violation?

The Health Insurance Portability and Accountability Act (HIPAA) generally bars medical providers from sharing patient information with a third party.

However, medical providers are allowed to use patient information to collect payment for treatment, and using a collection credit agency is considered part of that process.

That said, medical providers can typically only share the minimum necessary^[6] information with a debt collector, including:

• The patient’s name
• Contact information
• The date the treatment was provided and the cost
• Amounts and dates of previous payments
• Current amount due

If the practice shared details about or the purpose of your treatment, that might be considered a HIPAA violation. Some states may have more specific rules around information disclosure.

What if I’m waiting for the insurance company to pay?

The 180-day waiting period is designed to give you and your insurance company enough time to pay the bill. So, if there’s a dispute with your insurance company and it still hasn’t made a payment, the medical collection account can still show up on your credit report.

Fortunately, the new law that requires the 180-day waiting period also requires the removal of medical collections if they’re paid by the health insurance company.

That said, it may not be worth having your credit score drop even for a short period while you're waiting for your insurance company to reimburse you. So, consider finding other ways to pay your medical bill and then requesting a reimbursement from the health insurance company when the insurer approves the claim.

How to dispute a bogus bill

While there's not much you can do about a legitimate medical collection account on your credit report, a credit reporting agency or medical debt collection agency sometimes makes a mistake.

If you notice an unpaid medical expense on your credit report that has been added in error, contact the credit bureau directly to dispute it. You can typically complete the dispute process online or over the phone.

If your credit report lists a phone number for the collection agency, consider calling that agency to dispute the debt as well. Just be sure you don’t agree to make any payments or assume the debt. Not only will that add to your overall debt burden, but it may reset the clock on the statute of limitations.

Medical debt statute of limitations

It's important to know there are limits on how long a creditor or debt collector can take legal action against you for medical expenses you haven't paid. Those limits vary from state to state and by type of debt (see The Balance^[7] for a nice guide) so it's best to find a lawyer or credit counselor in your state to advise you.

The statute of limitation doesn't mean the agency can't call you for that debt in collections, but it does mean the agency doesn't have forever to be able to take you to court for it. If you give in to the pressure of the collections agency and make a payment, the clock starts over on the statute of limitations.

Medical collections remain in your credit report for seven years like other collections. So lenders may still see the debt from a medical provider when reviewing your credit report.

5 ways to pay your medical bills before they show up on your credit report

If you're waiting for your insurance company to take care of your hospital bill, it's best to avoid the possibility of having it end up on your credit report. Here are five options you have to achieve your goal.

• Payment plan: Medical providers often offer payment plans to their patients. Some don’t charge interest, making it more likely you can afford to pay it back.
• Medical credit cards: Companies like CareCredit offer small loans or credit card accounts to pay your medical bill. This option is typically available even if you have bad credit.
• 0% APR credit cards: If you have good or excellent credit, you could qualify for a credit card that offers an introductory 0% APR credit card. That way, you can pay off your hospital bill over time without any interest. Just keep the promotional period in mind; interest rates typically spike once it's over.
• Personal loan: Personal loans can typically be used for anything, including paying medical bills. If you have bad credit, though, you may end up with a high interest rate.
• Loan from a family member or friend: You may have a trusted family member or friend who would be willing to lend you the amount you need. In this case, remember that making late payments or defaulting could damage your relationship.

You can also consider asking the original creditor (hospital, doctor, etc.) if you can negotiate to reduce the bill so you have less outstanding debt. For example, ask if they offer discounts if you pay in cash, and check for potential billing errors.

If you do all of these things early on, it will be easier to avoid the problems that come with having an unpaid medical debt added to your credit report.

And if you don't feel confident you can do this on your own, consider credit counseling. There are many non-profit credit counselors certified by the National Foundation for Credit Counseling^[8] and the Federal Trade Commission has tips^[9] for choosing a good credit counselor.

See more ways you can work on improving your credit history.

Sources

1. Peterson-KFF Health System Tracker. “How does health spending in the U.S. compare to other countries?” https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/#item-start Accessed March 25, 2021
   
   
2. Consumer Finance Protection Bureau. “CFPB Spotlights Concerns with Medical Debt Collection and Reporting” https://www.consumerfinance.gov/about-us/newsroom/cfpb-spotlights-concerns-with-medical-debt-collection-and-reporting/ Accessed March 25, 2021
   
   
3. Experian. “Collections on your credit report” https://www.experian.com/blogs/ask-experian/credit-education/report-basics/how-and-when-collections-are-removed-from-a-credit-report/ Accessed March 25, 2021
   
   
4. NPR. “Credit Agencies To Ease Up On Medical Debt Reporting” https://www.npr.org/sections/health-shots/2017/07/11/536501809/credit-agencies-to-ease-up-on-medical-debt-reporting Accessed March 25, 2021
   
   
5. myFICO. “FICO® Scores Versions” https://www.myfico.com/credit-education/credit-scores/fico-score-versions Accessed March 25, 2021
   
   
6. U.S. Department of Health & Human Services. “Does the HIPAA Privacy Rule permit a covered entity or its collection agency to communicate with parties other than the patient (e.g., spouses or guardians) regarding payment of a bill?” https://www.hhs.gov/hipaa/for-professionals/faq/266/does-the-privacy-rule-permit-a-covered-entity-to-communicate-with-other-parties-regarding-a-bill/index.html Accessed March 25, 2021
   
   
7. The Balance. “State-by-State List of Statute of Limitations on Debt” https://www.thebalance.com/state-by-state-list-of-statute-of-limitations-on-debt-960881 Accessed March 25, 2021
   
   
8. National Foundation for Credit Counseling. https://www.nfcc.org/ Accessed March 25, 2021
   
   
9. Federal Trade Commission. “Choosing a Credit Counselor” https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor Accessed March 25, 2021
   
   

About the author

Ben Luthi is a personal finance writer, who has a degree in finance and was previously a staff writer for NerdWallet and Student Loan Hero. See Ben on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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