Unpaid medical bills, like other debt, can affect your credit negatively, but how and when that happens can be a little different than with other bills you owe. In fact, it can take longer for medical debts to show up on your credit report.
Still, like any other delinquent debt, if you leave medical bills unpaid for long enough, they will be reported to the credit bureaus, and this will have a negative impact on your credit.
The reason it may take a little longer is twofold:
First of all, medical providers themselves don’t report your debt to credit bureaus. As long as you owe the money to the health care provider directly, your credit isn’t likely to suffer. That doesn’t mean you can just refuse to pay, though, because if you don’t, the provider will eventually sell your debt to a collection agency — which places it on your credit report as a collection account.
Second, medical debt is different from other forms of debt. If you owe money on a car loan, credit card, or student loan, for example, you alone are responsible. But insurance companies often foot a portion of a patient’s medical bills. The amount the insurer pays will help determine the amount you, the patient, will be responsible for paying.
It may take months for your insurance provider to approve the medical expense and send its portion of the payment to the provider. As a result, most medical providers give you a grace period before sending your debt to collections.
A medical provider typically won’t sell your debt to collections until it’s at least 60 days past due and may extend that waiting period to as long as 90 or 120 days (three or four months).
Further, FICO® Score 9 and VantageScore give less weight to unpaid medical bills than other forms of debt. The latest FICO scoring model also ignores medical collections if the original balance of the unpaid bill was under $100.
However, it's important to note that most lenders use FICO 8 version or older, which weights medical debt equally to other types of debt. This means that medical debt can still have a significant impact on your credit score, and your ability to qualify for loans and other credit products on a large scale.
This is good news for Americans who are increasingly at risk for high medical costs. And more good news: The three credit agencies (Equifax, Experian, and TransUnion) provide you with a 180-day grace period on medical bills before reporting the debt.
However, some medical providers are quicker to sell debt than others, so it’s important that you don’t ignore your medical bill. Work with your insurance company and the medical provider to resolve your bills, either through negotiation or by setting up a payment plan. Many payment plans are interest-free and flexible depending on your income. With proactive planning and smart timing, you might be able to pay off your bill before it appears as a negative item on your credit report.
If you do have medical debt, this can stay on your credit report for up to seven years from the date it becomes delinquent. However, these debts should no longer appear on your credit report once they pass the seven-year limit, a period defined by the Fair Credit Reporting Act.
The act states that:
“Consumer reporting agencies may not report outdated negative information. In most cases, a consumer reporting agency may not report negative information that is more than seven years old, nor bankruptcies that are more than 10 years old.”
Keep in mind that you’ll still need to pay back an outstanding debt, regardless of whether it appears on your credit report.
The seven-year limit on credit reporting is different from the statute of limitations, which has to do with debt collection and can vary from state to state. The statute of limitations is the period of time during which a creditor, collections agency, or debt collector can try to sue you in court to enforce payment of a debt.
Under the Fair Debt Collection Practices Act, what they can’t do is harass you, use unfair or deceptive practices to collect a debt, or pursue a time-barred debt. This goes for medical bills and most other forms of debt.
The statute of limitations for most debt usually is between three and six years but can be longer, up to 10 or even 15 years, depending on the state and the form of debt incurred.
Whether or not the statute of limitations has passed usually has no effect on the status of the debt on your credit report. Consequently, even if your state’s statute of limitations is shorter than the federal seven-year limit, your credit score is still likely to drop because your payment history is the biggest factor in your score.
This, in turn, means lenders are less likely to look favorably on your creditworthiness and may not offer you loans in the future. Even if they do, your interest rate will probably be much higher than with a good credit score.
To go about removing medical debt from your credit report, first you need to determine whether the item is accurate, or if it was filed in error or as a result of identity theft or fraud.
If information is inaccurate or the medical collections are the result of fraud, you have the opportunity to dispute the debt through the three credit bureaus, or whichever credit bureau the incorrect information is displayed on.
To confirm a suspected error or determine whether you may have been the victim of fraud, order a free credit report from annualcreditreport.com and look for any discrepancies, such as excessive charges or purchases you don’t believe you made.
If you think fraud has been committed against you, you will need to send a separate dispute letter to each of the individual credit reporting agencies with which you’re disputing the medical bill.
Medical debt that’s been accurately registered but is still unpaid past the credit bureau’s 180-day grace period will remain on your credit report unless you pay it and petition for its removal. You can negotiate with the collection agency using a pay for delete letter.
There are ways to prevent medical bills from appearing on your credit report. The Consumer Financial Protection Bureau offers helpful tips for dealing with medical costs.
The most effective is to make your payments on time and in full. If you are facing delays because you’re having trouble getting an answer about your coverage, follow up with the insurance company.
But before you even get to that point, it’s a good idea to know what your health insurance plan covers, including the copay for the visit or procedure. Ask for an explanation of benefits (EOB), which is a statement from your health insurance provider detailing the service, costs from the provider, the amount covered, and the amount you’ll owe. Remember that the EOB is just an estimate and actual costs can vary after the procedure.
Given the unpredictable nature of medical emergencies, it’s important to have an emergency fund to put towards unforseen bills. If you don’t have insurance or cannot pay your medical bills in full, think about negotiating a payment arrangement before you arrange for a visit, hospital stay, or procedure. If you’re paying out of your own pocket, some providers may charge a reduced rate.
Once you’ve undergone treatment and receive a notice to pay, ask for an itemized bill and review each medical bill for accuracy in case there is an error. And keep a record of all of your medical bills, including the amounts you’ve paid and still owe. Compare your insurer’s explanation of benefits with each bill to make sure you’re not being asked to pay more than the insurance provider says you owe.
When you’ve determined how much you owe, you might want to set up a payment plan with your medical provider, so the bills don’t wind up going to collections as you make an effort to pay them. And if you choose a payment plan, agree to make monthly payments.
It’s a lot better to begin paying on your debt before it goes to collections. Once you have an unpaid medical collection account, paying it off may not remove the negative item from your credit report. Instead, your account may only be updated to show it’s been paid and there’s no longer a balance.
Medical bills can pile up quickly to an overwhelming level. That’s why it’s important to know your options going in, and to determine how you can pay before the first bill arrives. That way, you can protect your financial health while preserving your physical health at the same time — and you and your credit report won’t be taken by surprise.
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