Medical Debt and Your Credit Score

Prior to September 2017, there was a lot of confusion on how unpaid medical bills (or, medical debt) affect your credit score.

Medical debt is different than debt like mortgages, credit cards, and car payments. Why? Because medical debt is usually unpredictable.

The CFPB (Consumer Financial Protection Bureau) had set forth new guidelines for medical debts and how they can (and cannot) be reported to the three credit reporting companies (Experian, Equifax, and TransUnion).

Understanding HOW medical debt gets on your credit report and HOW MUCH it will affect your credit score in important. But, even more critical, is understanding how to ensure that your medical providers (and any collection agencies they may employ) are abiding by the two new policy changes required of credit bureaus regarding medical debt.

 

How Does an Unpaid Bill Get On Your Credit Report?

 

If a medical bill isn’t paid on time, the medical office may sell the debt to a collection agency or to an internal collection department. The office can report the amount of overdue money to a consumer reporting agency as an account in collection.

Once a collection agency gets a notice that you have an unpaid bill, they will come after you to collect the money.

 

The Role of Your Doctor’s Billing Cycle Has On Your Credit Report

 

Unfortunately, the amount of time to pay your medical bill is different for each doctor. Some require you to pay 30 days after receiving the bill. Still others require you to pay 60 or 90 days after receiving the bill.

This is important.

If you don’t pay your bill in the required time, it goes off to a collection agency and your credit report will be updated negatively.

Seeing multiple doctors can complicate matters. It can be difficult to know when and if a medical debt gets posted to your credit report.

Adding your insurance company into the scenario muddles things further.

 

What Role Does Your Insurance Company Play in Your Credit Report?

 

There are three things about medical bills that are unique from other bills:

1 – You do not know ahead of time the services that will be performed

2 – You do not know the cost of those services until after the fact

3 – You may not know what will be covered by your insurance

 

To know what medical services are covered by your insurance provider, and at what percent, can be tough to figure out.

While the insurance company decides what to cover and what not to cover, the clock is ticking against your doctor’s billing cycle.

If you have only 60 days to pay your bill and the insurance decision takes 45 days, you have only 15 days left to pay the balance.

If you need to dispute the coverage determination with your insurance company, your time to pay is decreased.

Even if the insurance company agrees to pay for all services, this can still cause a problem. They may pay on their schedule without regard to the doctor’s pay cycle. This could result as a late payment on your credit report.

 

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The Two Changes Protecting Your Credit Score

 

Starting in September 2017, the credit bureaus are now required to

1 – Wait 180 days before putting a medical debt on your credit report

2 – Remove any medical debt that was paid by your insurance company.

 

These changes can make a HUGE difference on your credit score. Allowing the customer 6 months to work out the details of their medical bills will lower stress. It will also give you time to pay off any charges not covered by your insurance.

The credit bureau is responsible for removing any paid medical debts from your account immediately.

These two changes could avoid a medical debt on your credit report costing up to 50 points.

An added side effect of these changes is two of the major credit scoring companies (FICO and VantageScore) have now adjusted their latest scoring engines to minimize the impact of unpaid medical bills. So even if a medical debt does make it onto your credit report, the impact to your score will be less significant.

 

Tips to Keep Your Credit Report Free of Medical Debt

 

Here are four ways to take advantage of the added time gained by the credit bureau changes.

 

Get an itemized bill from you provider

This will give you an idea of what each service cost and help you understand what doctor charged you for what service. Review the list and make sure that all services were performed and you know which medical office charged you.

 

Keep all documentation for the medical services

File all of your medical bills and insurance coverage statements in a safe place. You may need them in the future if there is a dispute on coverage.

If you need to send documentation, make copies of the papers and send the copies. Always keep your originals.

 

Make sure your insurance company has your correct personal information

Check that your insurance company has your current information. If you see a mistake correct it immediately. A small mistake can lead to big problems – and a big dip in your credit score.

 

Try to avoid putting medical bills on your credit card

If you pay your medical bills with your credit card, a missed payment will result in a high interest charge. Your other creditors won’t know it is a medical debt – to them, it looks like a regular missed payment.

Instead of relying on credit cards, ask your medical provider for a payment plan. Most have in-house programs available. Remember, they WANT you to pay them. So they will often bend over backwards to help you do so.

The main idea here is to be proactive and alert. Medical debt does not have to ruin your credit score.

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Other articles that may interest you:
9 Ways to Overcome Medical Debt
Are you Financially Resilient?
4 Reasons to Always Know Your Credit Score

This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.

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