How Medical Debt Can Ruin Your Credit Score

Last Update: June 3, 2020 Credit Report Debt

The most common debt.

Research by the Consumer Financial Protection Bureau has indicated that a tremendously large number of collection notices on credit reports are the result of outstanding medical debt. Medical debt poses a risk to everyone, young and old and whether you have health insurance or not.

It is estimated that about 65% of people with medical debt are actually insured, many through employer-sponsored plans. The bad news is that medical debt which has been handed over for collection, can potentially lower your credit score by more than 100 points. Even more unsettling is the fact that medical debt collection notices may stay on your credit for 7 years, even after you have paid off the bill.

There are ways which you can help to prevent medical debt from ruining your credit rating which are relatively easy to apply.

How to Keep Your Credit Score from Being Ripped to Pieces by Medical Debt?

  • Keep track of your accounts, so you are not taken by surprise by unpaid medical bills. Don’t take for granted that your health insurance will pick up every charge. It could be for something as simple as an incorrect coding that is paid to a wrong account. Consistently monitoring your statements and querying anything that seems unusual will eliminate future unpleasant surprises which may be lurking in the shadows.
  • Always stay in your network. Sometimes even if you are booked into an in-network hospital, you may be treated unknowingly by an out-of-network doctor or specialist. This is a major way of landing up with unexpected medical expenses. If this has not been clearly explained to you, you would be in your rights to contact the provider and ask to be billed at their in-network rate. You may be successful in getting the lower rates.
  • Although you may have health insurance and be very careful about staying in your network and diligent about checking your accounts, medical bills can still pile up for services not covered and be difficult to pay. Work out a payment plan with your provider if you are struggling to pay. Providers send unpaid bills to collection agencies, who in turn will report the debt to credit bureaus, if it remains unpaid. This will go onto your credit report, which will negatively affect your score.
  • It may be that your debt has already gone to a collection agency. You can also take action to negotiate with the agency so that they do not send it on to the credit bureau. Offer to work out a payment plan, if they will in turn hold off reporting the debt to the bureau. Surprisingly, most collection agencies are not keen to report debt to the credit bureaus, and will often take what they get, as long as you stick to the agreement.

If you are struggling with a hospital bill, you may have an option to apply for financial aid, as many hospitals are required to offer some form of financial assistance. You could qualify, but even if you don’t you will have some extra time to gather the funds needed for the payment.

What if You Don’t have any Health Insurance but Still Need Medical Care?

The US federal government fund two kinds of specific health care plans, namely Medicare and Medicaid. These plans are especially designed for the elderly who are over 65 years of age, the needy, and the young.

  • Medicare is a plan that pays for elderly (over 65) and certain disabled folk. It consists of 2 main parts, one of which pays for hospitalization, care in a skilled nursing facility, medical care, as well as medications, and equipment such as walkers and wheelchairs. Another part covers doctor and specialist visits, outpatient treatment, home care costs, and other services for the elderly and disabled.
  • Medicaid is a shared government and state program that provides health and nursing home cover for certain categories of low-income people. This group includes children, pregnant women, parents of eligible children, caregivers, people with disabilities, and elderly folk needing nursing home care. Others who are eligible to receive Medicaid cover are those who are recipients of government welfare, whether in cash or kind.

Don’t Get Sick!

The best way to ensure that your credit score is not ravaged by medical debt, is just to not get sick! This is a very impractical suggestion, and of course is not meant to be taken seriously!

A study published in the American Journal of Medicine revealed that medical debt is a major reason for bankruptcy, and reported that 20% of people in the national credit reporting system, have medical collection notices on their reports.

It also gives credence to the fact that American consumers are faced with the extraordinary high costs of healthcare in the US, which is rated as one of the most expensive places in the world to get ill.

You can help to prevent your credit score from falling apart by regularly paying attention to your accounts, querying treatments that were not paid for, asking the right questions about your network services, and being proactive about negotiating payments with providers for accounts that have to be paid, before they land up at collection agencies.

Get Nothing for Granted

When you go to the hospital, it is not only your health which is at stake. Your financial health can also take a dive if you are not diligent. The medical industry does not always explain the nitty-gritty of how extra charges can occur.

It is up to you query anything you are unsure of – providers are usually more than happy to help.



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