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How Do Medical Bills Affect Your Credit Score?

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If you have unpaid medical bills lingering on your credit report, you’ve got plenty of company. In fact, 32% of working American have outstanding medical debt and 54% with medical debt have defaulted on it, according to a recent study conducted by

Medical debt, as well as any ensuing collection activity, can cause stress and lead to sleepless nights, especially because it generally hits when your health is compromised. It’s an even bigger blow to see the impact of any unpaid bills on your credit reports and scores. However, there are ways to mitigate the damage.

How medical bills affect your credit

It’s when you fall behind on medical bill payments that wreaks havoc on your credit. But thanks to policies enacted in September 2017, the three major credit bureaus — Experian, Equifax and TransUnion — only include unpaid medical debt on credit reports after a 180-day waiting period.

That six-month grace period before unpaid medical debts are reported to credit agencies allows patients more time to resolve insurance issues or address billing errors before these negative marks affect their credit history, said Rod Griffin, director of public education at Experian.

“We made the changes because we want to help people manage those debts and not be affected by a debt that really isn’t something they owe.”

The impact of unpaid medical bills on credit scores varies depending on several factors, including:

  • The number of bills in collections
  • How recent the debt is
  • Your current score

Individuals with higher scores could see bigger credit score declines due to unpaid medical bills than those with lower scores.

Yet, credit-scoring models from VantageScore and FICO do not weigh unpaid medical debt as heavily as other accounts in collections.

Once a medical collections debt is paid, it no longer factors into your score calculation. But the positive impact on your score when you settle your debt may not be as drastic as the negative effect when collections are first reported.

Research conducted by FICO before the 2017 policy update showed that roughly 75% of those who had eligible medical debt — collections paid by insurance or accounts less than 180 days old — removed from their credit reports saw their scores change by less than 20 points. This was attributed to the fact that many people with medical collections may also have other negative marks on their credit history.

Negative marks from unpaid medical debts will remain on your credit reports for seven years — and the ding will be visible to lenders who pull your credit. But know that your credit score will eventually rebound once your debt is cleared and as you build a positive account and payment history to your credit reports.

How to stop medical bills from landing on your credit report

The best way to stop medical bills from showing up on your credit report — and negatively impacting your score — is to keep payments current. This doesn’t mean you should write a check for the full amount as soon as you receive a statement, however. Before you pay your bills, there are a few important steps you should take.

Review every bill carefully for errors

Medical billing errors are common. It’s estimated that anywhere from 30% to 80% of medical bills contain an error, according to Thomas Nitzsche, a credit educator at Money Management International.

Before you make any payments, request itemized bills and review all documents to see if you were billed for treatments you didn’t receive or line items that have been miscategorized. Common errors to look out for include being charged more than once for the same service, incorrect medication dosages, charges for preventive care that are actually covered by insurance and incorrect insurance reimbursement.

Understand your insurance

If you have health insurance, make sure you review both your Explanation of Benefits (EOB) and your billing statements side by side. This will help you understand what’s covered by your plan, what you’re being charged for and whether there are any discrepancies between the two. Call your insurance company if you have trouble making sense of these documents.

If you do find errors with either your original bill or your insurance reimbursement, call your provider and insurance company and request to have these charges updated or removed.

Negotiate your bill

Once you’ve sorted out any errors and insurance claims, call the billing department for your hospital or physician — wherever your bill(s) came from — and ask about options to reduce your bill or request to set up a payment plan that fits your budget. Some providers offer payment assistance and may even waive your balance if you prove financial hardship.

“Financial aid should be the first step when left with a large outstanding balance, especially if it’s a hospital bill,” said Nitzsche. “An in-house payment arrangement with the original provider keeps it from going to collections and will usually result in the most affordable payment if you’re wanting to spread it out over a period of time.”

Although applying for financial aid doesn’t guarantee you’ll qualify, simply submitting a request delays collections activity and keeps the debt off your credit report for longer, Nitzsche added.

Consolidate your debt

If, after you’ve exhausted your options with your care providers and insurance company, you still have debt to pay, you may consider consolidating your bills. There are types of loans for medical debt consolidation:

  • 0% intro APR credit card – These come with 0% interest promotions, generally from six to 21 months, but the credit line may be too small to cover a large medical bill, and any balance left unpaid will be subject to the regular ongoing APR.
  • Personal loan – This is probably the best option as personal loans come with much longer repayment terms of several years and tend to have lower interest rates than credit cards.
  • Home equity loan – It’s best to avoid tapping the equity in your home for medical bills because if you run into more financial difficulties and can’t pay, you risk losing your home.
  • 401(k) loan – Unless you have a very high balance in your retirement plan, don’t risk what you do have to settle medical bills. You may be subject to fees and penalties if you switch or lose your job, and are unable to repay the balance in a lump sum.

As you can see, each option comes with risks and benefits, so before you commit, make sure you shop around and understand your monthly payment and interest obligations, as well as the consequences of defaulting on the loan.

How to handle medical bills sent to collections

The updated reporting policies mean that you have up to six months to clear any unpaid medical debt before you see any impact to your credit reports and scores.

If medical debts are sent to a collection agency, familiarize yourself with unfair debt collections practices so you know your rights and what to say and do when debt collectors call.

Whether you should pay off medical collections accounts on your credit report depends on the age of the debt. Older debts carry an expiration date, or a statute of limitations, which basically means that collectors can no longer take you to court and sue you or freeze your assets in an attempt to obtain payment. The statute of limitations on medical debt varies by state and ranges from three to 10 years.

As such, while an unpaid medical debt will remain on your credit report for seven years, the statute of limitations may expire much earlier. At this point, you have no legal obligation to pay off your debt, and it may not even make sense to do so.

If the debt will soon drop from your credit report anyway, paying it off will provide limited benefit to your credit score and the money you spend to settle it may be better used to meet your current financial obligations.

If you do choose to pay down more recent collections debt, always start with the newest accounts first since they’ll be on your credit report the longest.

There are roughly three ways to settle a debt that be taken over by a debt collection agency:

  1. Set up a payment plan with the collector, but make sure you get the payment plan in writing before you start. Don’t agree to pay more than you can afford to pay each month. Once the debt is paid, make sure the collection agency will notify the debt as paid to the credit bureaus.
  2. Negotiate the amount owed. If you have a lump sum of cash available, you may want to try to settle your debt for less than what you owe. If you are successful in negotiating down what you owe, know that the debt will be marked as settled on your credit report, which will hurt your credit score. Also, as with any agreements you reach with a collection agency, make sure you get it in writing before you make any payment.
  3. Pay off what you owe in full. This is the best option when trying to restore your credit score, but it will require that you have the money on hand. If not, you may want to consider applying for a personal loan if you can get a low interest rate, but it’s best to avoid tapping retirement accounts or home equity.

Can medical debt be removed from a credit report?

Once unpaid medical debt has gone unpaid for 180 days and goes into collection, it generally stays there for seven years — even if you settle the debt with the collections agency. At that point, your credit report will update to reflect that you’ve settled the account.

There is an exception, however, and that is if an insurance company pays the debt that is in collection. If that happens, then the credit bureaus are required to remove the debt from your credit reports.

And if the collection activity was reported in error, you should dispute it to have it removed.

“You can dispute it with the credit bureau and we’ll go back to the source if you believe it shouldn’t be reported, and if the source agrees we will take it off the credit report,” said Griffin.

“You may work with the medical provider and they may agree to take it off, although that’s going to be the exception. If it’s an accurate collection account, they are obligated to report that information accurately.”

While accurately reported medical debt remains on your report for seven years, it has less impact on your score as time passes — and once you pay off collections accounts, they won’t likely factor into your score at all.

Dealing with debt that insurance doesn’t cover

If your insurance company doesn’t pay part or all of your medical bills, you should definitely work with your provider to negotiate a bill reduction or payment plan, especially if paying any part of your debt presents a financial hardship.

The best way to prevent negative marks on your credit is to keep your debts with the original provider for as long as possible.

“If you wait until you are in collections, you can’t get financial aid,” Nitzsche said. “You may have been eligible for some or even all of your bill to be covered, but you either didn’t know to apply for aid or waited too long.”

One way to ensure your insurance will cover more of your medical costs is to check your benefits before you receive care. This isn’t always possible in an emergency, but if you choose in-network providers over those out of network and opt for services that are allowed under your plan, you likely won’t be hit with such shocking bills.

If you’ve taken the above steps and still feel like you’re drowning in debt, you can work with a credit counselor to consolidate your payments through a debt management program.

Nonprofit credit counseling agencies typically negotiate interest rates and fees with lenders — though when it comes to medical debt, these programs are more to help you manage your payments because medical bills are already zero interest. At the very least, a credit counselor can walk you through your options and help you determine the next steps.

As a last resort, especially if the medical bills are astronomical, explore whether filing for bankruptcy is an option you could consider.


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