Home > Managing Debt > The Shocking Cost of Medical Collection Accounts On Your Credit Reports

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Medical BillsCan a $30 medical collection account really cost you thousands of dollars on your next mortgage? Absolutely, says mortgage broker Rodney Anderson, who has seen it happen with his clients and has the research to prove it. I recently interviewed Anderson on Talk Credit Radio about the problems with medical collection accounts, and the legislative solution he’s been working on. Here is an edited excerpt from that interview.

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Gerri: Rodney, tell me what’s going on with your efforts on the issue of medical collection accounts.

Rodney: The Medical Debt Responsibility Act came about, actually, about 4 years ago when (a bill was first) introduced in the U.S. House of Representatives. People who were buying or refinancing homes would have perfect credit all except a medical collection. Maybe it’s for $17, $100 or $200. It would be dropping their credit scores. I saw one drop 121 points.

Gerri: That (can mean) a lot of money on a mortgage.

[Related Story: How Much is Your FICO Score Costing You on Your Mortgage?]

Rodney: Fannie Mae and Freddie Mac raised the minimum credit standards (applicants need) in order to get the best interest rate on January 1st of 2008 from 620 to 680. Then 90 days later, they raised it from 680 to 720. Then 120 days later, they raised it from 720 to 740. So now in order to get the best rate, for example, with 20% down, you have to have a 740 credit score.

So I did a research study of 5,100 people that have applied for a loan with me for a 10-month period of time, and we found that 2,200 of them – regular everyday common people – had at least one medical collection lowering their credit scores. So that’s how all this came about.

Gerri:  (When it comes to) medical billing, they make mistakes a lot. It’s not an unusual thing.

Rodney: You’re right. According to the American Medical Association, over 20% of claim forms have errors on them. In fact, about a year ago, CNBC was interviewing the CEO of (a large insurance company) and the question came out – how many medical claims do you process a year? And he said, 440 million. And the interviewer said, how many of them have errors on them? And he said, 3%. So the interviewer said, are you kidding me? 13.2 million Americans are affected by medical errors? And that was just (that one insurer) alone.

[Related Story: Reader Stops Mysterious Medical Bill From Damaging Her Credit]

Gerri:  I hear from people who thinks that there’s something different about medical bills. My husband, who should know better, asked me this very question. Do medical collection accounts end up on your credit reports? And the answer is,”yes!” And they hurt you just like any other collection account.


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Rodney: Basically, people say, okay I didn’t know about it, I’m willing to pay it but it stays on my credit for seven years. So what the Medical Debt Responsibility Act does, is when you pay or settle a medical collection under $2,500 and rather than waiting 7 years (for it to be removed from your credit reports), it is permanently removed within 45 days.

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Gerri: So who can possibly be opposed to this legislation?

Rodney: Well, we have bipartisan support by both Democrats and Republicans in the US House. But here’s what basically happens: Some people have ideological approaches that say the government shouldn’t be involved in making business decisions.

Image: José Goulão, via Flickr

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