Can Medical Bills Hurt My Credit Scores?

can medical bills affect credit score

Are you worried that medical bills might harm your credit scores? You might be right. Although not every medical bill you receive is going to impact your credit scores, defaulted medical bills are another story, one without a very happy ending.

The Danger of Ignoring Medical Bills

Even with health insurance, medical bills can rack up quickly. And if you’re uninsured, even a simple ER visit can spin into an alarming amount of debt. While you may feel overwhelmed when large medical bills begin to arrive in your mailbox, ignoring them is a huge mistake.

Simply incurring a medical bill will not have any impact on your credit. The hospital you visited and/or the doctors who treated you do not typically report your accounts to the credit bureaus. In fact, if you receive a medical bill you cannot afford to pay in full, many medical service providers are even willing to set up payment arrangements with you, upon request.

While most medical providers do not report to the credit bureaus, the opposite is true once a collection agency gets involved.

Unpaid and defaulted medical debts, on the other hand, can indeed lead to significant credit problems. Most medical providers will attempt to collect fees from you for a few months. If you do not pay or set up an acceptable payment plan (if offered) during that time, your medical provider is probably going to outsource your debt to a third-party debt collection company, informally referred to as a collection agency.

While most medical providers do not report to the credit bureaus, the opposite is true once a collection agency gets involved. If your medical debt is outsourced to a third party, a collection account is almost certain to wind up on your credit reports. And no, that’s never a good thing.

Medical Collections and Credit Scores

There are many who believe that medical collections aren’t a big deal because who in the world would choose to get into medical-related debt. Unfortunately and in many cases, medical collections are going to have the same negative impact on your credit scores as any other type of collection account.

The degree of credit score damage caused by the medical collection is going to depend on the rest of your credit report. Medical collections can sometimes damage your scores significantly, especially if your credit reports were clean prior to the addition of the derogatory account. If your scores were already in bad shape, the addition of one more collection account is not going to be as damaging.

Future Changes

Older credit scoring models, such as the generation of the FICO score currently used by the mortgage industry, were designed to treat medical collection accounts just like any other collection account. However, both FICO and VantageScore have since released newer credit scoring model generations that discount the treatment of medical collections where your credit scores are concerned. In the future, when and if these newer and better scoring models become more widely adopted, a new medical collection on your credit reports might not be such a serious problem. For the time being, however, medical collections can absolutely hurt your credit scores and might even make it impossible to qualify for the financing you need (i.e. home loan).

The Good News

Lenders typically do not view your medical collections in the same way that they view other derogatory accounts. Medical debt is not as serious of a problem as a collection for an unpaid credit card account. If the rest of your credit is clean, a few medical collections might not cheat you out of a loan approval, though they may still impact your terms.

Additionally, thanks to the credit bureaus' recent settlement, the National Consumer Assistance Plan (NCAP) will soon result in some changes in medical collection credit reporting. By June 2018, collection agencies will not be allowed to report medical collections to the credit bureaus unless the debt is 180 days past due. The NCAP will also require collection agencies to remove from credit reports any medical collections that are paid or are being paid by insurance. This is great news if a medical collection has ever unfairly been added to your credit reports when the debt should have been covered by your medical insurance plan in the first place.