Medical care, and its subsequent soaring bills, come unexpectedly. Medical emergencies, complicated surgeries, and sudden treatments can leave individuals with more medical debt than they know how to tackle. When people don’t have the money on hand to pay for the procedures immediately, this medical debt becomes pervasive.
If you fit into this category, know that you’re not alone. In fact, it’s estimated that over 40 million American adults carry some amount of medical debt.1
This leaves many with the question: Does medical debt affect credit score?
In short, it can.
Below, we’ll define medical debt, explain how it can affect your credit, and provide some practical strategies for how to get help with medical bills.
What is Medical Debt?
Medical debt is any money you owe after receiving medical services from a health care provider, from standard blood tests to specialized surgeries. If you can’t afford to pay your medical debt promptly, you may face serious consequences.
Here’s what happens if you can’t pay medical bills:
- Your medical bills will become past due – If you can’t pay a medical bill or work out some kind of payment plan with your healthcare provider within 90 to 180 days of its initial billing, they may label your debt as delinquent.
- Your delinquent medical debt may get sold to a collections agency – Once your debt is delinquent, your healthcare provider may give up on securing your payment and sell it to a collections agency in hopes of recouping a portion of the balance. Once your medical expenses have gone to debt collection, you’ll likely start receiving calls, letters, and potentially social media messages from debt collectors.
- Your medical debt collections accounts can be reported to the credit bureaus – Unpaid medical debt can’t affect your credit record until it’s been reported to the credit bureaus. Once you have a collections account listed on your credit reports, you may notice a drop in your credit score. Fortunately, recent changes have altered how medical debt is handled in terms of credit reporting (see below).
- You may get sued for the unpaid medical debt – As a last resort, your healthcare provider or debt collector may sue you for the unpaid debt. In this case, you’ll be required to show up in court and you may have your wages garnished if the judge rules against you. Nearly 40,000 legal actions were filed against medical patients with unpaid debt from 2018 to 2020.2
Do Unpaid Medical Bills Impact Your Credit Score?
Similar to how you can harm your credit by falling behind on credit card or loan payments, unpaid medical debt can have negative credit score implications. However, medical debt is treated a little differently than other types of debt, since it often arises out of unforeseen circumstances.
Here’s a summary of the recent changes that took effect on July 1, 2022:3
- Unpaid medical debts in collections will only show up on credit reports after they’ve been delinquent for one year (rather than the previous delinquency period of six months).
- Medical debts in collections will fall off credit reports as soon as they’re paid.
- Starting in 2023, medical collection debts with balances below $500 will no longer show up on credit reports at all.
It’s estimated that these changes will remove up to 70% of medical debt from consumer credit reports.3 In turn, many people can expect to see an increase in their credit scores going forward. These changes also give medical patients more time to do the following before their credit is affected:
- Review their medical bills for any errors
- Check in with their health insurance companies
- Negotiate their medical bills with their healthcare providers
- Settle with their debt collectors
Some credit scoring models are also eliminating medical debt from their algorithms altogether. For instance, VantageScore announced that it won’t take into account medical collection debt in its 3.0 and 4.0 scoring models starting December 2022.4 In turn, VantageScore predicts that many consumers will see up to a 20-point increase in their credit scores.
How Long Does Medical Debt Stay on Your Credit Report?
A collection account is classified as a derogatory mark on your credit report. Typically, derogatory marks remain on your credit report for up to seven years, though their impact on your credit score typically wanes over time.5
Due to the recent changes in credit reporting, medical debt will be removed from your credit report as soon as it’s paid, enabling you to restore your credit faster.
If you’re wondering: Does medical debt affect credit score? We have the explanation and answer the questions you have to help prepare you for when medical debt hits you unexpectedly.
- Forbes. Medical Debt: Everything You Need To Know. https://www.forbes.com/advisor/health-insurance/medical-debt/
- ProPublica. Some Hospitals Kept Suing Patients Over Medical Debt Through the Pandemic. https://www.propublica.org/article/some-hospitals-kept-suing-patients-over-medical-debt-through-the-pandemic
- Equifax. Equifax, Experian, and TransUnion Support U.S. Consumers With Changes to Medical Collection Debt Reporting. https://investor.equifax.com/news-events/press-releases/detail/1222/equifax-experian-and-transunion-support-u-s-consumers
- VantageScore. VantageScore Removes Medical Debt Collection Records From Latest Scoring Models. https://vantagescore.com/major-credit-score-news-vantagescore-removes-medical-debt-collection-records-from-latest-scoring-models/
- NerdWallet. How Long Do Derogatory Marks Stay on Your Credit? https://www.nerdwallet.com/article/finance/negative-marks-on-your-credit-report-how-long