Medical expenses can potentially impact your credit scores, although the degree of impact can vary depending on various factors. Here’s some useful information to help you understand the connection between medical bills and your credit scores:
1. Billing Process – When you undergo medical treatment, the healthcare provider usually submits a bill to your insurance first. If there are any remaining costs that aren’t covered by insurance, you may receive a bill directly. It’s crucial to carefully review these bills and ensure their accuracy.
2. Unpaid Bills – Failing to pay your medical bills on time may result in the healthcare provider sending them to collections. This can negatively affect your credit score, as collection agencies often report such debts to major credit bureaus, leading to a drop in your overall score.
3. Credit Reporting – Medical debt is handled differently compared to other types of debt such as credit card debt or personal loans. In 2017, the three main credit reporting agencies (Equifax, Experian and TransUnion) implemented changes in how they report medical debt. Now there is a waiting period of 180 days before any medical debt appears on your credit report. This allows you to have sufficient time to resolve any disagreements or mistakes with your insurance coverage or billing statements.
4. Impact on Credit Score – Unpaid medical bills that are sent for collection can potentially lower your credit score. The extent of the impact depends on your overall credit history and the specific credit scoring model employed. Generally, the higher your credit score, the greater the potential negative effect of unpaid medical debt.
5. Credit Scoring Models – FICO and VantageScore are two commonly utilized models for calculating credit scores. They take into account various factors such as payment history, credit utilization, length of credit history, types of credit used and new credit inquiries. Medical debt can influence both payment history and debt utilization components.
6. Resolving Issues – If you come across any inaccuracies in your medical bills or face financial challenges, it is advisable to reach out to the medical provider and your insurance company promptly to address these concerns. There may be options available such as negotiating a payment plan or even settling the debt for a reduced amount.
7. Credit Restoration – Should you have a medical debt impacting your credit score negatively, there are steps you can take to restore your creditworthiness. It’s important to make sure you pay your bills on time, reduce your overall debt and develop good credit habits.
Keep in mind that the effect of medical bills on your credit score can vary based on different factors such as your individual financial situation and the policies of credit reporting agencies. It’s a smart move to stay updated on your credit reports and scores and take prompt action if any problems arise.