November 12, 2019
Consumer Credit Expert
Lenders use credit scores to help predict risk. Credit scores are designed to calculate the odds that you’ll become 90 days late (or more) on any credit obligation within the next 24 months. The more likely it is that you might pay something 90 days late within that time frame, the lower your scores will be.
Most people understand why certain actions could lead to lower credit scores. For example, if your credit reports show you’ve made late payments in the past, the odds that you’ll pay late again are higher. If you have legitimate collection accounts, repossessions, or other major derogatory activity, these could also be signs that you won’t pay as agreed again in the future.
After all, not paying a large emergency room bill doesn’t automatically make you an untrustworthy borrower. Maybe you just got sick or injured and didn’t have enough cash to cover the astronomically high bill that showed up in your mailbox a few weeks later. Another reason medical debt goes into default is due to insurance billing issues. Finally, medical collections can also be the result of credit reporting errors.
Thankfully, not all medical bills hurt your credit. And, even medical bills that do cause credit damage might not harm your scores as much as other negative accounts.
When Medical Debt Doesn’t Hurt Your Credit
Medical bills don’t show up on your credit report every time you visit a doctor. Instead, medical debt should only affect your credit if it’s unpaid and turned over to a collection agency. Thanks to the National Consumer Assistance Plan (NCAP), medical collections should only be added to your credit reports once they’re at least 180 days past due.
So, medical bills covered by insurance and those you pay for out of pocket will hopefully never appear on your reports. Can’t afford to pay your full balance? Many medical providers may be willing to set up payment plans. This, too, could keep medical collections off your credit reports.
Tip: If a medical collection doesn’t appear on your credit reports, it can’t impact your credit scores.
When Medical Debt Could Hurt Your Credit
Of course, medical bills aren’t always covered by insurance. Even if you have medical coverage, you might be responsible for paying all or part of a medical bill.
If you pay your bill, your credit should (hopefully) be fine. But if you ignore the medical bills that show up in your mailbox, that’s another story.
Even if you think your insurance covers a medical bill, you should call the medical provider and confirm that the balance owed is $0. If there’s an outstanding balance you believe your insurance company should have paid, call your medical insurer to discuss the problem.
This process isn’t much fun. It can be time-consuming and frustrating. But ignoring medical bills can damage your credit. If a doctor or hospital doesn’t get paid because of an insurance billing issue, your credit might suffer.
Medical Credit Errors
Medical bills won’t automatically damage your credit, but they could if a bill goes unpaid. Exactly how much a medical collection might hurt your scores depends on several factors — including which credit scoring model a lender uses to calculate your scores.
Remember, sometimes medical bills wind up on credit reports in error or with incorrect information. If this happens, you have the right to dispute any credit reporting errors under federal law.
Want help dealing with incorrect medical collections on your credit reports? Schedule a free credit analysis with a member of the Financial Renovation Solutions team today.