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A trip to the emergency room or bad news from your doctor could result in thousands of dollars in medical bills. Those medical debts, in turn, can do big damage to your bank account — and they can hurt your credit as well. Medical bills don’t generally head straight for your credit report, since they’re not related to a loan you took out. However, many healthcare providers sell unpaid debts to collections agencies, usually after 90 days or so. And those accounts can wind up on your credit report and hurt your credit scores. Let’s break it down.
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 can cause a decent credit score to drop by as many as 100 points. (Not sure where your credit score stands? You can view two of your free credit scores by visiting Credit.com.)
Many patients don’t realize how easy it is for a medical bill to damage their credit. They don’t understand that:
The best course of action is to prevent a bill from winding up in collections in the first place. That’s why it’s so important to make all your payments on time. But if you’re unable to do that, the next best thing is to ask a collection agency not to report the bill to the credit agencies right away. If you’re able to resolve your bill quickly, you may prevent it from appearing on your credit report.
If you’ve received a collection notice and don’t believe it is accurate or fair, you can ask the agency to validate the debt under the Fair Debt Collection Practices Act. You may also dispute the bill with the three major credit agencies under the Fair Credit Reporting Act.
While it is possible to consolidate your medical bills through a debt relief program, you’ll want to be sure that you’re working with a reputable company who has your best interests at heart. If you find yourself struggling to pay unsecured debts such as credit cards, personal loans and medical bills, and you don’t think you can do it in the next five years, it’s a good idea to seek an expert who can walk you through your options. This may include a medical debt consolidation loan or another personal loan with a variable interest rate.
While medical debts can still severely damage your credit, changes over the last few years in the credit scoring and credit reporting industries have provided some relief to people with outstanding medical bills. Newer credit scoring models, including VantageScore 3.0 and FICO 9, ignore paid medical debts completely. More recently, as part of the National Consumer Assistance Plan — the result of a settlement brokered with 31 state’s attorneys generals — the major credit reporting agencies agreed not to report medical debts until 180 days after they were incurred, in order to give patients more time to resolve them. (The settlement was brokered in 2015 and the credit bureaus were given three years to implement the plan.)
If you find yourself unable to repay medical bills or in the hospital without insurance, there are a few things you can do to avoid being stuck with an unmanageable amount of debt:
Over the past few years, the following regulations have been recommended by various consumer groups to improve patient’s rights and control potential abusive medical billings:
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