Unpaid medical debt may impact your credit score, depending on the balance. But the three major credit bureaus have made some favorable changes to which medical debts they’ll incorporate into credit scoring going forward.
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Paid medical debt no longer hurts your credit: In July of 2022, the nationwide credit reporting agencies elected to remove paid medical debt collections from U.S. credit reports. Once you’ve paid a debt in collections, it should no longer show up on your credit report.
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Unpaid medical debt will only impact you after one year: The agencies also announced in July of 2022 that medical debt in collections will only appear on credit reports after one year, an increase from the previous six months. If you just received your first call from a debt collector, you have some time to negotiate with your healthcare provider or insurance company before the debt hits your credit score.
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Unpaid medical debt less than $500 won’t impact your credit: As of April 2023, medical debt with an initial balance below $500 no longer appears on credit reports. The change wipes out 70% of medical debt collection accounts from credit files.
Furthermore, VantageScore announced in August that it would exclude all medical debt from its credit scoring model in the future, which would boost scores for millions of consumers. FICO doesn’t plan to follow suit, but that’s because the change would have little effect, according to their analysis.
How big of a burden is medical debt?
A report from the CFPB revealed the following about how much medical debt affects consumers:
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Medical debt impacts 20% of households: The CFPB found medical debt in collections in about 43 million consumer credit files.
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Consumers have at least $88 billion in medical debt: As of June 2021, the collective medical debt balance in collections was a whopping $88 billion, but the CFPB estimates that the total amount owed by consumers is even higher.
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Most medical debts are for less than $500: The decision to exclude medical debts under $500 erases more than two-thirds of medical debt collections accounts, since most have a low balance.
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Medical debt makes up the majority of debt in collections: Medical debt is the most common type of debt in collections appearing on credit reports, accounting for 58% of all debt collections tradelines.
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Medical debt is more common among certain marginalized groups: Black and Hispanic people, low-income people, young adults, older adults, and veterans are all disproportionately impacted by medical debt.
How can I get medical bills off my credit report?
There are generally only two ways to remove medical debt from your credit report:
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Dispute medical debts that are on your report in error: If you believe a medical debt mistakenly appears on your credit report, you should dispute the error. For example, if a debt is older than seven years or less than $500, it should be removed from your report. Debts that have been paid shouldn’t show up, either.
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Arrange for payment of the medical debt: Start by contacting your insurance company if you believe the bill should have been covered. If your health insurance company pays the debt, it will be removed from your report and will no longer impact your score. You can also pay the debt collector yourself. If that seems unaffordable, consider a debt consolidation loan or work with an approved credit counselor to get out of debt faster.
If you can’t remove the debt from your credit report, you may be able to find other ways to boost your credit score and access better borrowing rates. If the medical debt on your credit report is preventing you from buying a house, know that the debt will be removed after seven years, and you can use that time to pay off other debts and save for a down payment. You can also explore options for a bad credit mortgage.
Can I stop medical debt from affecting my credit?
There are a few ways to prevent future medical bills from being sent to a debt collector:
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Understand your health insurance coverage: Make sure you understand what’s covered under your plan, and appeal any denied claims that you think should be covered. When you can, use less costly services, as long as your plan covers them — for example, a telehealth or urgent care visit may help you avoid a visit to the emergency room.
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Maintain an emergency fund: You should aim to have the amount of your health plan’s out-of-pocket maximum stashed in a savings account (consider a high-yield account if you want to earn a little extra cash).
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Negotiate unaffordable bills: Nonprofit hospitals are required to provide financial assistance to select individuals who received medically necessary healthcare services. (Eligibility requirements vary by state, and you need to ask your healthcare provider.) Even if you don’t qualify, many healthcare providers offer payment plans to help manage large bills, often interest-free. You can also hire a billing advocate to help negotiate your balance or use a service like Goodbill to lower your medical bills.
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Start a crowdfunding campaign: If you still can’t afford your medical bills, try asking your social network for help. Start a free crowdfunding campaign on a site like CoFund Health to cover your out-of-pocket expenses. To read more click here.