Q&A: How to Improve Credit When You Have Medical Debt

Question: I'm wondering how to improve credit after a major health crisis. My credit score has taken a huge hit because I paid for expenses not covered by my insurance with a credit card. Is there anything I can do right now to minimize further damage to my score?

Answer: Medical debt is one of the biggest reasons people file for bankruptcy. Debt that is the result of an illness or some other personal crisis is very frustrating because you didn't directly cause it. It seems so unfair. Nevertheless, it's your responsibility to pay it off or find a way to lower the amount you owe. Since the debt is on your credit card, your first step is straightforward.

Stop using credit cards

Don't use your credit cards for any purchases until you get your medical debt taken care of. If you need your cards to meet your monthly expenses, then you might want to speak with a credit counselor to review your options. Go to the website for the National Foundation for Credit Counseling where you can find an NFCC-accredited credit counseling agency. You'll usually get a free one-hour phone consultation and this might help you determine your next steps.

If you can still pay all of your bills on time without resorting to credit cards, then put the cards away while you focus on your medical debt.

Review all of your medical bills

Sit down and review all of your medical bill statements. You're going to call each provider and see if you can negotiate the charges. Also, look at each line item to see if anything looks wrong. For example, is there a charge for a service or item you never received? If so, you need to inquire about it when you call that provider.

Call your medical providers

Next, you're going to call each provider and let them know about your situation. Tell them that you want to pay your bills, but it would help if they lower the balance due. You'll need to offer something in return, such as making a specific payment each month until the balance is paid off. Trying to negotiate may or may not be successful, but it's worth a try.

If you're focusing on how to improve credit, lowering your credit utilization ratio is a good start. If you can get a few balances lowered, you will see a little bump in your credit score. This is because your utilization ratio will go down. Your ratio is the amount of credit used compared to the amount of credit you have available on your cards. When you have a lot of credit card debt, this makes your ratio high and that lowers your credit score. So lowering those balances can help boost your score.

Another way to nudge your balance downward is to add a few dollars to your minimum payment for the month.

Pay more than the minimum

It takes a long time to get out of debt if you only make the minimum payment each month. Go through your budget and decide where you can cut corners. Even it's only $25 a month more. Every little bit helps.

And remember, when you cut expenses, it won't be forever. Once you take back your financial life, you can restore your entertainment budget. It's tough to make the sacrifices, especially since you've already had to deal with a medical crisis.

Consider a balance transfer credit card

You'll need excellent credit to get the best deals. But once your credit rating climbs back up into the "good credit" zone, take a look at these cards. Even if you don't qualify for the best deals, such as a zero percent introductory offer for 18 months, you can still come out ahead if you can get approved for a card that offers a lower rate than what you're paying now. For example, if you have an 18 percent APR, you might be able to get a balance transfer card offering an 11 percent APR.

So as your score improves, keep an eye on the offers for these types of cards. You might get these offers in the mail or you can find and compare credit cards at LendingTree.com.

Get loan offers customized for you today.