Medical bills can be painful, and even more so when they hurt your credit. The damage can be significant. Doctors or hospitals don’t usually report medical debt to credit reporting agencies. Instead, they turn unpaid debts over to a debt collector, and it is the collection agency that reports them.
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In fact, according to the Consumer Financial Protection Bureau, roughly half of all collection accounts on credit reports are due to medical debt, and these accounts can significantly damage consumer credit scores. A single collection account can cause a good credit score to drop 50 to 100 points — or more!
Many patients don’t realize how easy it is for a medical bill to damage their credit. They don’t understand that:
- Even if you are making payments on a medical bill, it may be sent to collections. (It’s a common misconception that if you pay something, they can’t send the debt to a collection agency. That’s not true.)
- Medical bills sometimes turn up in collections before the patient even gets a bill. At that point, the damage may have been done.
- Collection accounts are usually damaging, regardless of whether they are medically related. (More on this in a moment.)
- Paying the collection agency may not fix your credit. In most cases, those accounts are reported for 7.5 years and are often very damaging — paid or unpaid. (See the caveats below.)
- The size of the debt is not as important as the status of the debt. In other words, even a relatively small bill that winds up with a bill collector can harm your credit scores.
It is critical that you review your credit reports annually, and monitor your credit scores on a regular basis. (Think of it as a checkup for your credit health.) You can get a free credit report summary and score, updated monthly, at Credit.com. One survey by Credit.com found that 10% of those who reviewed their credit reports discovered a collection account they didn’t know about.
Will a Medical Debt in Collections Really Hurt My Scores?
You have many different credit scores, not just a single one. (Even among FICO scores, there are many different versions.) The newest version of the FICO score, FICO 9 — ignores paid collection accounts, and medical collection accounts carry less weight under that model. VantageScore 3 also ignores paid collection accounts of all types.
But most lenders still use older versions of credit scores that do not give medical collections any special treatment. For that reason, you should assume that if you find a collection account on your credit report, it will likely be viewed negatively when you apply for credit, insurance or employment.
How to Maintain Healthier Credit
So what can you do?
Before one of these bills winds up in collections, to the extent possible, try to be very proactive about your medical bills. Even if you have good health insurance, don’t assume everything will be taken care of. Review your EOBs (Explanation of Benefits) carefully and contact the provider and/or your insurance company quickly if it’s not being taken care of.
If you are contacted by a collection agency about a medical bill, ask them not to report it if you pay it right away (assuming you believe you owe the bill). Some won’t report if the bill is resolved quickly.
Again: Having a collection account updated as “paid” generally does not help your scores, unless a lender is using one of the newer credit score versions. So aim for removal of the item if possible. Some agencies will work with you, others won’t.
If you feel the situation is highly unfair — you never got a copy of the bill, for example — you can try two things. One is to file a complaint with the Consumer Financial Protection Bureau. The other is to contact the original provider and try to get them to pull it back from collections so you can pay them directly. If they do, the account will usually no longer be reported.
If you are contacted by a collection agency and you don’t believe you owe the bill, you have the right under the federal Fair Debt Collection Practices Act to ask the collection agency to validate the debt. You also have the right under the Fair Credit Reporting Act to dispute it with the credit reporting agencies reporting the account.