Time to resolution
92% of Americans have some kind of health insurance coverage. However, that does not imply that they are completely sorted with regard to medical expenses. Quite often, insurance companies only cover a percentage of the claimed medical expenses, transferring the burden of paying the remainder from your pockets. If not paid on time, they may accumulate into staggering medical debt.
According to recent estimates from the Kaiser Family Foundation (KFF), over 3 million people in the US owe over $10,000 in medical debts. This large amount highlights the widespread scale of medical debts. Further, it raises questions like “Do medical bills affect credit scores?” If yes, then how?
This article will explore medical debt, how it affects your credit score, the regulatory policy changes that safeguard your interests against medical debt, and what you need to do to ensure your medical bills don’t turn into long-term debts.
Any debt incurred as a result of medical expenses is referred to as medical debt.
Example: Suppose you need to go to the hospital and undergo surgery. Alternatively, you have been given a wheelchair tailored to your requirements and then billed for the amount you have to pay out of pocket. However, you’re unable to pay the entire cost or even the part that your insurance policy does not cover. This will be considered medical debt.
Medical debt can originate from a variety of causes, such as:
The above bar chart showcases the sources of medical debt based on data from the Kaiser Family Foundation, with doctor visits, diagnostic tests, lab fees, and emergency room visits contributing the most to medical debt.
Understanding the intricacies of medical debt is essential to know whether it impacts your credit score. Let’s explore that in the next section.
Firstly, do medical bills affect credit scores directly? Well, not really if you pay them within the stipulated timeframe.
The bill you receive from a hospital or the payment plan you work out with a provider is typically not reported to the three major credit bureaus that compile your credit report: Experian, Equifax, and TransUnion. It usually stays with your medical care provider for a few months, during which they try methods like Accounts Receivable follow-up to recover the amount owed for medical services.
However, if you don’t settle the bills within sixty or ninety days (varies from provider to provider), they may send it to a medical collection agency.
Even after it is transferred to a collection agency, it is treated differently from other debts, such as credit cards. It won't show up on your credit report right away. The healthcare provider must give you 365 days to settle any medical debt before it shows up in your credit history compiled by one of the three major consumer credit bureaus.
During this time, you may also seek financial assistance or sort out issues with your health insurance company.
Example: If the bill is for a covered charge, you may have to wait months for your insurance company to approve and pay the healthcare provider. A billing mistake or coding problem can further slow the payment procedure. This 365-day grace period allows the insurance company's payment to get processed through the system.
Pro Tip: Use this grace period to correct any mistakes and, if necessary, arrange a payment schedule.
That does not imply that you should disregard medical bills. Even though it can take a while for them to appear on your credit report, unpaid medical collection accounts over $500 can stay on your credit report for seven years after the collection agency reports them. This has the potential to cause long-term damage to your credit score.
However, once paid, they are completely removed from your credit report.
Do you find handling medical debt difficult? Let South East Client Services (SECS) accurately reflect the right amounts on your credit reports and streamline your repayment process. Our expert team is here to help you navigate medical debt management with clarity and ease.
Now, let’s look at some important policy changes and regulations and how they play crucial roles in protecting consumers from medical debts.
The Fair and Accurate Credit Transactions Act of 2003, which further amended the Fair Credit Reporting Act (FCRA), prohibited credit lenders from using medical debt information when evaluating a borrower's loan application. However, due to a federal regulatory exception, creditors were able to access and utilize the data.
To fix the gap and eliminate medical debt from the credit reporting system, the Consumer Financial Protection Bureau (CFPB) finalized a rule in January 2025 prohibiting data furnishers and credit bureaus from reporting on medical bills and debt.
The main provisions of the rule are as follows:
This amendment to the Fair and Accurate Credit Transactions Act enhances privacy safeguards, increases loan approvals, decreases predatory credit reporting activities, and prevents medical debt from negatively affecting credit scores.
Did You Know? Equifax, Experian, and TransUnion, the Nationwide Credit Reporting Agencies (NCRAs), also eliminated medical collection debt with an initial reported balance of less than $500 from U.S. consumer credit reports in April 2023. This change in credit reporting removed nearly 70% of collection accounts from consumer credit files.
These new rules don’t mean you won’t have to pay your overdue bills. They only mean your credit report won’t include your medical debt. Collections agencies and healthcare providers can still contact you and even take legal action to make you pay your outstanding bills. Hence, you must know how to react and handle medical bills before they turn into debt. We’ll explore that next.
Do not freak out if you know you don’t have enough money to pay your medical bills on time. One of the following choices can resolve your issue.
The above flowchart outlines the key options for avoiding medical bills from turning into piled-up debts.
If you are unable to pay a bill, try to negotiate with your healthcare provider to lower the amount owed. Alternatively, request that they arrange a monthly payment plan.
Some providers offer significant savings if you agree to pay a smaller sum in full or if you make a sizable down payment and then spread out the remaining balance over time. Just keep in mind that any interest or fees the provider imposes will increase the cost of the original bill.
Pro Tip: Make sure you get repayment arrangements in writing. This can serve as a helpful guide for your payment schedule and support you if challenges pop up, such as when your lender questions your ability to make on-time payments.
Medical billing advocates assist clients in resolving medical bills by collaborating with insurance companies and healthcare providers. Although the service is not free, it can be worthwhile. In addition to saving you hours on the phone with provider offices and insurers, a medical billing advocate can help you save thousands of dollars.
Medicaid, state or municipal programs, nonprofits or religious organizations, and charities may be able to assist you with paying medical bills, depending on your income. Verify if you satisfy their qualification criteria.
Also Read: Medical Debt Assistance: Relief for Unexpected Health Costs
First, get in touch with the medical provider or collection agency if you think a debt has been unintentionally added to your credit report. If there’s no resolution, you may dispute it with the three NCRAs.
You can gather proof and submit it to the appropriate authorities, including the three main credit bureaus, the police, and your medical providers if your medical debt is the consequence of an identity theft problem. Include police reports, identity documents, and fraud alerts from your creditors in this backup material.
By taking these steps, you can help prevent medical costs from damaging your credit by avoiding them from being reported as unpaid and possibly going into collections.
Also Read: Steps to Dispute Collections and Remove from Credit Report
These should be your last resort because you will be charged interest on the amount you charge or borrow. If you intend to use a credit card, try to see if you’re eligible for a card that offers 0% APR (Annual Percentage Rate) on purchases. Such cards provide you more time to pay off your medical debt without incurring interest. However, ensure to pay off the debt before the higher rate starts.
Medical debt is a serious issue that can have long-lasting effects on your credit score, but with the right approach, it can be managed effectively. Taking proactive steps, such as negotiating bills with providers and disputing errors on your credit report, can help protect your credit score and reduce the impact of medical debt. Moreover, recent regulation changes have the potential to reduce or eliminate how your debt can impact your credit score.
However, if you’re confused about the required course of action while facing medical debt, South East Client Services (SECS) is here to help. Additionally, our team of experts understands the complexities of medical debt collection, so you don’t have to worry about inaccurate credit reporting that may damage your credit score.
Contact SECS today to discover how our proven methodologies ensure compliant debt collection for our clients and protect your rights as a borrower.
