How Unpaid Medical Bills Can Impact Your Credit Score

Medical bills won't have an effect on your credit score as long as you pay them. However, medical debt is handled differently than other types of consumer debt. Since most healthcare providers don't report to credit bureaus, your debt would have to be sold to a collection agency before it appears on your credit report. If you stay with your original service provider, medical debt won't be included in your credit report.

But once it goes into collections, it's likely to affect your credit score. These debts can stay on your credit report for up to seven years, although the new rule will now eliminate them if they are settled. A case of collection debt on your credit report can lower your credit score by up to 110 points. Your credit rating is what lenders use to determine if you will qualify for loans, as well as the interest rate on those loans. It's important not to let the bill stand there and then rush at the last minute so that everything is resolved. The agreement applies to all 50 states and requires the removal of a medical collection account from your credit report if an insurance company pays the debt based on the health coverage selected.

On July 1, paid medical charges will disappear from Equifax, Experian and TransUnion credit reports. Some of FICO and VantageScore's newer algorithms already ignore paid medical collections and place less emphasis on unpaid medical debt compared to other types of debt. Unlike the decision to buy a home or make a large purchase on a credit card, medical expenses often arise from circumstances that the consumer does not control. Smedsrud warns that, while this announcement is good news, it does not eliminate medical debt and does not eliminate all medical debts on credit reports. Once an unpaid medical bill is reported to the credit bureaus, it will stay on your credit report for up to seven years. When you don't pay your medical bill and it's turned over to a collection agency, it can have a detrimental effect on your FICO score.

And the length of time before unpaid medical collection debt appears on your credit reports increases from 6 months to 1 year. If you have an unpaid medical expense, it's not going to end your credit score like you did with the previous model. When you have a health insurance policy, it's vital to review the Explanation of Benefits (EOB) provided to you by your insurance company. One of the agency's regulators, the Consumer Financial Protection Bureau (CFPB), had been considering banning medical debt before these changes were announced. The most important thing is to be aware of how many points unpaid medical bills can affect your credit score. A survey indicated that one in four members of Generation Z and Millennials with medical debts skipped rent or mortgage payments because of their debt.

It's essential to understand how this type of debt works and how it can impact your financial future.

Theodore Eflin
Theodore Eflin

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