Do Unpaid Medical Bills Affect Your Credit?

Medical expenses can be a significant financial burden, and many people wonder about the impact of unpaid medical bills on their credit. The short answer is yes, unpaid medical bills can affect your credit, but recent changes have made this impact less severe than in the past.

Understanding Medical Debt and Credit Reporting

Medical debt is treated differently from other types of consumer debt when it comes to credit reporting. Unlike credit card bills or loan payments, medical bills don’t automatically appear on your credit report when they’re issued. Instead, they only show up if they go unpaid for an extended period and are sent to collections.

Additionally, Medical Billing Audits can play a vital role in ensuring accurate billing processes, reducing disputes, and preventing unpaid balances from escalating into credit issues. These audits review billing practices for errors and discrepancies, which helps both patients and providers address potential problems early.

Recent Changes in Medical Debt Reporting

In recent years, there have been significant changes to how medical debt is reported and how it affects credit scores:

1. Paid medical collections are no longer reported on credit reports as of July 2022.
2. The waiting period for unpaid medical collections to appear on credit reports increased from 6 months to 1 year.
3. As of April 2023, unpaid medical collections with an initial balance under $500 are no longer included on credit reports.

These changes have reduced the impact of medical debt on credit scores for many consumers.

How Unpaid Medical Bills Can Affect Your Credit

While the recent changes have lessened the impact, unpaid medical bills can still affect your credit under certain circumstances:

1. Collections Reporting: If a medical bill goes unpaid for at least 90 days, your healthcare provider may send it to a collection agency1. After a one-year waiting period, if the unpaid bill has an initial balance of $500 or more, it can be reported to credit bureaus.
2. Credit Score Impact: Once reported, unpaid medical collections can significantly impact your credit score. “If medical bills go unpaid for an extended period, they can significantly tarnish one’s credit, potentially sinking a good credit score by up to 100 points,” according to Mark Pierce, Founder and CEO of Wyoming Trust & LLC Attorney.
3. Long-Term Effects: Unpaid medical collections can remain on your credit report for up to seven years, even if you eventually pay them off.

Differences in Credit Scoring Models

It’s important to note that different credit scoring models treat medical debt differently:

• VantageScore: The latest VantageScore models (3.0 and 4.0) exclude all paid and unpaid medical collections from score calculations, regardless of the amount owed or how long the debt has been in collections.
• FICO: FICO scores still consider unpaid medical collections but differentiate between medical and non-medical collections in their calculations.

Proposed Changes and Future Outlook

The landscape of medical debt reporting is continuing to evolve:

• In June 2024, the Consumer Financial Protection Bureau (CFPB) proposed a rule to remove medical bills from credit reports entirely.
• A final decision on this proposal is expected in early 2025.
• If implemented, this rule would prevent credit reporting companies from sharing medical debt information with lenders and prohibit lenders from using medical information in lending decisions.

Protecting Your Credit from Medical Bills

While these changes have reduced the impact of medical debt on credit scores, it’s still important to manage your medical bills proactively:

1. Review Bills Carefully: Check all medical bills for accuracy and dispute any errors promptly.
2. Negotiate with Providers: Many healthcare providers are willing to work out payment plans or offer discounts for prompt payment.
3. Understand Your Insurance Coverage: Know what your insurance covers to avoid unexpected bills.
4. Act Quickly: If you receive a bill you can’t pay, contact the provider immediately to discuss your options.
5. Consider Credit Counseling: If you’re struggling with multiple debts, including medical bills, credit counseling can help you develop a manageable repayment plan.

The Broader Impact of Medical Debt

Medical debt remains a significant issue for many Americans:

• A 2024 report estimates that Americans owe a total of $220 billion in medical debt.
• About 14 million Americans owe more than $1,000 in medical debt, and 3 million people owe more than $10,000.

These statistics highlight the ongoing need for reforms in healthcare billing and credit reporting practices.

Conclusion

While unpaid medical bills can still affect your credit, recent changes have significantly reduced their impact. Paid medical collections no longer appear on credit reports, and only unpaid medical debts over $500 that are more than a year old can be reported. Furthermore, proposed regulations may soon eliminate medical debt from credit reports entirely.

However, it’s crucial to stay informed about your medical bills and take proactive steps to manage them. By understanding your rights, communicating with healthcare providers, and addressing issues promptly, you can minimize the potential impact of medical debt on your credit and overall financial health.

Remember, your credit score is an important factor in your financial life, affecting everything from loan approvals to interest rates. While medical debt may be unavoidable in some cases, being proactive and informed can help you navigate these challenges and maintain a healthy credit profile.