We have all heard of how unpaid credit cards and loans can hurt your credit, but can unpaid medical bills affect your credit also? Today we take an in-depth look at how medical bills affect credit scores.
What Happens When You Can’t Pay?
After you have a visit to a medical facility, whether it be an emergency room visit or a routine procedure, you will start to receive bills in the mail for any remaining balance. Usually, your bill will first be sent to your health insurance company, who will either pay part or all of the amount, depending on the procedure and coverage.
You are required to pay the remaining balance of whatever amount the insurance company does not cover.
Each doctor’s office or medical provider has a different set of guidelines for how long they will give you to pay your bill. In addition, most providers will work with you to set up some type of payment plan to settle your debt. The best course of action is to contact the medical provider directly in an attempt to settle the debt or work through a payment plan.
In the event you are unable to meet their demands or pay for services rendered, your debt can be referred to a collection agency.
Medical Bills And Collection Agencies
If and when a medical provider sells the unpaid debt to a collection agency, you will start to be contacted relentlessly by the collection agency. Usually, the medical provider does not report the unpaid medical bill to the credit agencies. The collection agency is usually the one to contact the credit agencies.
When you are contacted by the collection agency, ask for proof of the debt. The agency is required to provide you with the total amount of the debt and the name of the medical provider that is seeking payment. Always verify with the original medical provider the amount, don’t take the word of the collection agency. For more information, refer to my related guest post: How To Negotiate With Debt Collectors.
Do Medical Bills Affect Credit Scores?
If you are unable to come to a resolution with the medical provider or the collection agency, the next part of the process begins. At this point, the collection agency more than likely will report the unpaid debt to the credit agencies.
Under a new law passed in 2017, the unpaid medicals bills will not go on your credit report until they are at least 180 days past due. The 180 day grace period from the time your account became delinquent, was put in place to help people settle their bills before anything appeared on their credit report.
Your best course of action is to immediately work with the collection agency for payment. If you work with them early enough, you may be able to stop them from reporting to the credit bureaus if you pay the balance quickly. If the collection agency has already reported your account to the credit agencies, your credit will take a hit.
If you later pay the bill in full, your credit report will be updated to show as paid, but your scores will still be negatively impacted. A way around this hit is to negotiate with the collection agency. If you are lucky, you may be able to have the collection agency remove the delinquent report from the credit bureaus.
This is commonly known as, “pay for delete” and is something you should get in writing if agreed upon.
How Much Will Medical Bills Hurt My Credit?
After the 180 day period, your credit score will become negatively impacted. If you have a good credit score, you may see the impact of a 50 – 100 point drop. From there, if you continually pay the remainder of your debts on time, you will see your score slowly increase.
In addition to the point drop, the delinquent account will remain on your credit report for a period of 7 years. After the 7-year time frame, it will drop off your credit report.
What If I Don’t Pay My Medical Bill?
Ignoring medical bills that you truly owe can have several different consequences. The medical provider may write your unpaid balance off as a loss and your credit will be damaged for a period of 7 years.
After 7 years, you can move on. However, if the provider has not written it off as a loss and moved on, you will continue to get calls from the collection agency. If you continue to ignore the collection agency and the provider, the provider may have the option to put a medical lien on you and your assets. This depends on your current state laws.
These liens can be put on your property and keep you from selling your home, or they may take the remaining balance of the debt from the equity in your house upon the sale. In a worst-case scenario, the lien can actually force the sale of your home in certain situations.
What You Should Do About Medical Bills
Most medical providers will not pursue the lien scenario if you are willing to work with them. Do not ignore your medical bills because it is not worth the worse case scenarios that could happen.
Work with the provider and collection agency on a payment plan to get the bill settled as quickly as possible. For help on budgeting this into your monthly expenses, refer to my related article: The Debt Payoff Playbook.
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Check Your Credit Report Annually
Regardless of your debt history, you should get in the habit of checking your credit report on an annual basis. Federal law requires that you are able to check your report annually for free at Annual Credit Report.
Getting into this habit will keep you on top of any issues on your credit that may not be accurate. If you have settled a debt, ensure that your credit report reflects this change. In addition to ensuring accuracy, you can see if you have any other reported unpaid balances.
A credit report will also show you if someone has opened credit in your name (identify theft). Get into good habits of paying off debt early and checking your credit to avoid having financial issues.
I hope this answered some of your questions about medical bills and how they affect your credit. If you have not subscribed to my blog, I encourage you to enter your email below! I post multiple times a week and will get back to you on any comments or questions you may have. Keep working at your finances my friends – you work too hard to be this broke!