What Your Medical Debt May Mean for Your Credit Report


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.

Medical financing can have a large impact on your overall ability to get other loans, pay of loans, and impact your interest rates as well. When looking for medical credit keep in mind that unpaid medical bills can have serious impact on your credit score and will show up on your credit report card, for example defaulting on your loans.

Do Medical Bills Affect Your Credit Score?

Most of the information on your consumer credit report—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, most common way medical bills on credit report show up is when it goes into default with the original service provider who then enlists the assistance of a medical collections 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.

How to Dispute a Medical Bill: Guide from Step One

Not paying medical bills can get you into a tough situation, especially when you default. As we learned, these types of situations can get your credit report into a lot of trouble and your credit score decreasing. Here are some steps you should take to get a medical bill off your credit report if it doesn’t belong there.

  1. Notes – It is very important that you take down notes for everything. When applying for a medical loan, talking to a doctor, or a representative. Having documentation is the most important part as it will give you insights into every conversation you had since the start.
  2. Detailed Bills – When questioning a charge, make sure to ask for a detailed medical bill to show exactly what was charged. This will help you break down if something was charged on your bill that wasn’t supposed to be there, and will save you a world of trouble before it shows up on your report.
  3. Writing – Although phone calls are great, get everything in writing when communicating. This is just as important, if not more important, than note taking. When something is in writing you will have concrete proof of trying to establish contact and the exact words used on the other line.

Keeping these points in mind, there is also good news for those who hold medical debt. Medical collections on credit reports, for FICO, will no longer have as deep as impact as they used to. According to a new FICO rating system, the factors have changed for that vertical.

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Published April 2, 2015 Updated: April 13, 2016
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