How Medical Debt Impacts Your Credit Score and Report

Getting sick or injured can be stressful enough without having to worry about how the medical bills might impact your credit. Unfortunately, unpaid medical debt that goes to collections can show up on your credit report and hurt your credit score. Here’s what you need to know about how medical debt affects your credit, and what you can do about it.

How Medical Debt Gets on Your Credit Report

Most doctors’ offices or hospitals don’t actually report your medical debts to the credit bureaus (Equifax, Experian, and TransUnion). So if you fail to pay a medical bill, it won’t automatically show up on your credit.^[1]

However, if a medical bill goes unpaid for several months, the health care provider may eventually send it to collections. Collection agencies do report debts to the credit bureaus. So if a medical collection appears on your credit report, it can negatively impact your credit score.

New Rules Help Lessen the Impact

The good news is that the credit bureaus have implemented new policies to reduce the impact of medical debt on credit reports. As of July 2022, paid medical collection accounts will no longer show up on credit reports at all.^[5] This is helpful because even paid debts could negatively impact your credit score in the past.

In addition, as of early 2023, medical collection accounts under $500 will no longer appear on credit reports.^[4] This change is expected to remove about 70% of medical collections from credit reports.

The credit bureaus also increased the waiting period before unpaid medical debts appear on your report. Now medical providers or collection agencies must wait one year before reporting unpaid medical debts, up from six months previously.^[2]

Strategies for Dealing with Medical Debt

While the new credit bureau policies should help, you may still end up with large medical debts that could hurt your credit if left unpaid. Here are some tips for dealing with medical debt and minimizing the credit impact:

• Ask for an itemized bill and verify that all the charges are accurate. Errors do happen, so it’s important to double check.
• If the medical provider isn’t willing to work with you on a payment plan, try to negotiate a settlement for a lump sum that is lower than the full balance.
• Apply for financial assistance or charity care from the hospital. Most have programs for low-income patients.
• Consider using a medical credit card or personal loan to pay off the debt and establish a monthly payment plan.
• Communicate with the medical provider or collection agency to prevent the account from being reported until you can get it paid off.
• Keep records of all communications and payments so you can dispute any errors.

How Medical Debt Hurts Your Credit

If an unpaid medical bill does end up in collections and on your credit report, it can significantly drag down your credit score. Accounts sent to collections are a major red flag for potential lenders.

Collection accounts hurt your credit in a few key ways:^[6]

• They lower your credit score – Medical collections can drop your credit score by over 100 points.
• They stay on your credit report for 7 years – The negative mark remains even after you pay the collection account.
• They make other credit more expensive – Having collections on your report means you are labeled higher risk.

How to Remove Medical Debt from Your Credit Report

If you’ve got medical debt on your credit report that shouldn’t be there, you have a right to dispute it. Here are some steps to try:

1. Get copies of your credit reports from Equifax, Experian and TransUnion. Review them for any medical accounts in collections that you don’t believe are valid.
2. Write dispute letters to each credit bureau that’s reporting inaccurate information. Explain why the medical debt is wrong and provide any proof that supports your claim.
3. Submit your dispute letters by certified mail and request a response within 30 days. The credit bureaus must investigate disputed items.
4. Check your credit reports again after the investigation. If the medical collection still appears, submit another dispute.
5. Contact the medical provider or collection agency directly to resolve the issue if errors continue to appear.
6. File complaints with the Consumer Financial Protection Bureau and Federal Trade Commission if the credit bureaus fail to correct inaccurate information.

Persistence and documentation are key when disputing medical debt on your credit. If the collection account is valid, payment in full may be the only way to remove it before the 7-year period expires.

How to Rebuild Your Credit after Medical Debt

If medical debt has already caused significant damage to your credit, it can take time to rebuild. But positive credit habits can offset the negative impact. Try these tips for recovering after medical debt:

• Get current on all other accounts and maintain a perfect payment history going forward.
• Keep credit card balances low and credit utilization under 30%.
• Avoid applying for new credit unless absolutely necessary.
• Consider becoming an authorized user on someone else’s credit card to benefit from their positive history.
• Open a secured credit card if you need help re-establishing credit.
• Wait for the medical collections to fall off your report after 7 years.

Having medical debt go to collections can be frustrating. But new credit bureau policies help lessen the damage, and proactive steps can get your credit back on track. With patience and diligent financial habits, you can outlast the effects of medical debt.