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What Your Medical Debt May Mean for Your Credit Report

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Going through a medical ordeal can be traumatic on its own. What’s worse? In some cases that experience can end up having big implications for your credit score and report.

Most of the information on your consumer credit reports—maintained by Equifax, Experian and TransUnion—relates to liabilities (read: loans and debt) that you have with banks, credit unions, credit card issuers, or collection agencies that have purchased defaulted debt. The one notable exception to that rule is the presence of medical related liabilities on your credit report.

There are two ways medical-related debt can end up on a consumer credit report. First, the medical service provider can report the debt to the credit bureau while the patient is making monthly payments. This is fairly uncommon as doctors’ offices are rarely “furnishers of information” as referenced throughout the Fair Credit Reporting Act.

The second, more common way a medical debt can show up on your credit reports is when it goes into default with the original service provider who then enlists the assistance of a collection agency in order to convince the consumer to pay their bill. This is referred to as outsourcing or consigning. The doctor’s office has sent their past due notices and are going to let the collectors take over.

If the debt has been consigned to the collection agency, then the consumer can still pay the doctor’s office directly. The office still owns the debt and is legally acting as the creditor. If, however, the collection agency collects the money from the consumer, they will receive a percentage of the amount collected as their fee. Debts consigned to collection agencies can be, and often are, reported to the national credit reporting agencies.

If the debt has been sold to a debt buyer then the consumer can no longer pay the doctor’s office because they are no longer the creditor. You no longer owe the doctor’s office any money. Instead, you owe the money directly to the debt buyer, who is likely either a collection agency or collection attorney.

When defaulted debt is sold, the purchase price can be very low relative to the actual amount owed. In fact, it’s not unheard of for defaulted debt to be purchased for pennies on the dollar. That leaves the collection agency in a very good position to make money if they can coax any payment out of the debtor.

As with debts consigned to collectors, debts purchased are also likely to be reported to the credit reporting agencies. In certain circumstances, collection letters and phone calls aren’t far behind. Not everyone with defaulted medical debt is going to get phone calls from collectors.

Collection agencies are less likely to spend time trying to collect a debt from someone who is very unlikely to pay it. They’ll instead focus on the lower hanging fruit, which is the consumer who is more likely to pay them.

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