How Medical Debt Can Impact Your Credit Score

Medical debt can impact your credit score through either your length of credit history or your payment history, depending on the rest of your credit. Learn more about how exactly it can do that below.

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Updates to Medical Debt Collections as of 2022

If you currently have unpaid medical debt, you’ll be happy to learn that there have been changes to the way this debt is recorded on credit reports. The three main credit reporting agencies, TransUnion, Equifax and Experian, are changing the way they handle medical debt.

  • Paid medical debt doesn’t stay on your reports. Perhaps the biggest change comes with how medical debt is reported once you pay it off. Starting July 1, 2022, all three credit reporting agencies no longer include paid medical debt on individual credit reports. Prior to this change, any medical debt would have remained on your credit report for up to 7 years. After July 1, 2022, any medical debt will be removed from your credit report as soon as it’s paid in full.
  • New medical debt won’t show up on your reports for a year. These credit reporting agencies are also giving consumers more time to pay off their medical debt. Previously, medical debt that was at least 6 months past due could be part of your credit report. However, the new changes push this waiting period up to 1 year. Thanks to this change, you now have 1 full year to pay off any medical debt or enter into a payment plan agreement before it impacts your credit report.
  •  (2023) Bills under $500 will not appear on your credit reports. The third credit reporting agencies medical debt change takes effect in 2023 and involves health care bills under $500. The credit reporting agencies have agreed not to include unpaid medical debt under $500 on credit reports. The Consumer Financial Protection Bureau estimates that this change could impact two-thirds of all unpaid medical debt reported on credit reports.

It’s important to note that this change doesn’t relieve you from paying your medical debt. You still owe these medical bills, and medical debt collectors can still contact you. It only means this debt will no longer be part of your credit report. Medical organizations and collection agencies can still take other actions, such as court action, if you fail to pay this debt.

These changes could mean a significant improvement in your overall credit score. This is especially true if you currently have paid or unpaid medical debt on your credit report. The new changes may also hurt some consumers.

If medical debt is the only thing listed on your credit report, its removal could result in an unscorable credit score. This only happens when there isn’t enough information on your credit report to determine an accurate credit score. 

What Impact Will Medical Debt Have on My Credit?

Medical debt listed on your credit report has a direct impact on your credit score. In fact, your payment history accounts for as much as 35% of your overall credit score. In the past, many credit score models treated medical debt just like all other forms of debt. In this scenario, medical debt could significantly lower your credit score.

However, there’s a new push to treat medical debt differently from other forms of debt. This different treatment is due to the fact that medical debt is often unplanned and unavoidable.

For example, with a credit card, you choose to establish a credit card and make purchases. It’s expected that you budget for this credit card debt prior to making purchases. Medical bills are different because you never know when a medical emergency may occur. You also don’t have an option about seeking treatment because your life may depend on it. For these reasons, many credit score models are changing their formulas.

For instance, VantageScore 3.0 and VantageScore 4.0 no longer consider medical debt when calculating credit scores. While FICO does still consider medical debt listed on a credit report, it holds less weight than other types of unpaid debts.

The reality is that unpaid medical bills can affect your credit score if they’re listed on your credit report. The extent of this effect depends on the credit score model. You can track your Experian credit score free for up to 14 days with Free Credit Score. This can give you some idea of how medical debt may be impacting your credit score.

How Long Does Medical Debt Stay on Your Credit Report?

If you have medical debt that’s over $500 and more than 1 year overdue, it can be reported to the credit reporting agency and be listed on your credit report. This unpaid medical debt can remain on your credit report for up to 7 years or until it’s paid in full. Thanks to the new changes on July 1, 2022, all paid medical debt is removed from your credit report. However, the removal process can take up to 30 days to complete.

How to Get Medical Debt Off of Your Credit Report

Everyone makes mistakes sometimes, and credit reporting agencies are no different. It’s important to regularly check your credit reports to make sure they don’t include any errors. All three major credit reporting agencies allow you to request one free credit report each year. You can also check out your Free Credit Report Card to see how information on your credit report is impacting your credit score.

If you believe any medical debt is listed on your credit report in error, you can take steps to have this debt removed. With the new reporting changes in mind, you should also take steps to have any medical debt that’s paid in full, unpaid medical bills less than $500 or debt that’s less than 1 year past due removed from your credit report.

You can file a dispute by submitting a credit challenge letter explaining the error, along with any documentation to prove your claim, directly to the credit reporting agency. These agencies are required to investigate all dispute claims. If these agencies find the debt is listed in error, they’ll remove it from your credit report.

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