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What Effect Does Medical Debt Have on Your Credit?

What Effect Does Medical Debt Have on Your Credit?

Delinquent medical expenses may still hurt a person’s credit rating

Unpaid medical expenses may hurt your credit report, making it difficult to receive a loan, purchase a house, or find a job. When it comes to medical debt, you run the following risks: 

Payment history is the single most crucial component in determining your credit score since it shows how consistently you make on-time payments on your debts. Your credit may be affected if you put off paying substantial medical costs because of drawn-out talks with providers and insurance.

According to the National Consumer Law Center, medical debt does not influence your credit score unless reported to a credit agency, and nearly no hospital or medical provider would do so (NCLC). They may, however, hand it on to a collection agency, which would then be responsible for reporting it. Nearly 30 percent of consumers who had recently faced a high healthcare cost had their bill sent to a collection agency, according to a Consumer Reports poll. Until you hear from the collector, you may not know you’ve fallen behind on your payments.

Can a medical bankruptcy help get you free of the burden

Insolvency can offer relief from medical expenses, however it can also bring negative consequences for other debts, credit scores and important assets such as a house or vehicle. If you’re thinking about bankruptcy as a means to resolve medical debt, you’re certainly not the only one. Medical debt that is unmanageable and the troubles that usually accompany such as losing work or less access to credit can result in financial ruin.

However, filing for Bankruptcy online isn’t always the most ideal option. While bankruptcy can assist you to deal with or reduce the burden of medical bills, it’s impossible to restrict your claim to just one type of debt in the procedure. Additionally, bankruptcy can have a long-lasting negative effect upon your credit and may make your assets vulnerable.

Medical bankruptcy: Is it a thing?

“Medical bankruptcy” is not an official legal classification of bankruptcy. This doesn’t mean that the filing of bankruptcy won’t help with healthcare expenses but it does mean that you can’t select and decide the debts you want to include in your bankruptcy.

If you decide to make an application to file Chapter 7 or Chapter 13 medical debt is only an aspect of what can be included in the calculation of your total obligation. The bankruptcy process may impact your outstanding credit card debt, or your ability to live at home.

This is why it’s essential to understand exactly what you’re facing when you consider bankruptcy to pay medical debt. Knowing about Chapter 7 and Chapter 13 will help clarify the potential benefits you stand to gain and what you could risk losing in the process.

Consumers will be better protected.

The good news is that not all debt is created equal, which is a consolation prize. In contrast to overdue accounts, the three leading credit agencies regard medical debt differently, so customers are better protected from having medical costs weigh down on their credit score. Key differences:

  • Period of inactivity. The credit bureaus have to wait 180 days after receiving a medical debt report to appear on your credit record. Before payment is labeled late and impacts your credit score, there is a grace period for resolving disagreements with medical providers or insurance companies.
  • Removal of medical debt. Regardless of when or how the debt is resolved, most collection accounts stay on your credit record for at least seven years. When a medical bill has been paid or reimbursed by insurance, the debt is erased off one’s credit report.

According to these new laws, medical debt isn’t always a sign of credit risk, which went into effect in 2017. Many times, a customer is forced to pay for medical bills because of events beyond their control, such as an accident or illness.

I believe there is an understanding that anything may happen to anybody at any time.” “We’re all consumers of healthcare,” says NCLC staff attorney Jenifer Bosco. Accidents, illnesses, or health crises may happen to anybody.

Increasingly, credit scores take these discrepancies into account. FICO Score 9, the most recent version of the FICO scoring system, assigns medical debt less weight than other obligations when evaluating a consumer’s creditworthiness. There’s also a newer version of VantageScore that follows suit.

Medical debt may hurt your personal and financial well-being

Even if you have medical debt, it still affects your credit rating. Equifax’s vice president of communications and consumer education Nancy Bistritz-Balkan notes that a collection that hits a credit report may affect up to 100 points on the FICO scale of 300 to 850.

Regardless of the source, a lower credit score will impact your ability to borrow money or receive credit, and on what conditions. Another option is to negotiate a higher interest rate in exchange for continuing to be authorized for credit. 

Credit reports may be used by certain businesses to evaluate job seekers. There’s also no assurance that any medical debt you may have would be given less weight since many lenders are still using outdated versions of FICO to measure a consumer’s credit risk.

There will be constant phone calls, letters, and emails from a collection agency if you owe money to your doctor or hospital or they engage a collection agency to do so. When dealing with debt collectors, the federal Fair Debt Collection Practices Act provides your rights and alternatives.

Medical debt is included in “civil debt,” along with credit card and personal loan debt. However, a creditor or collection agency has the right to sue you in civil court and pursue property liens or wage garnishments instead of payment. Work income, however, may be withheld for medical debt (unlike Social Security and military benefits).

Finally, keep in mind that the 180-day grace period provided by the 2017 modifications in credit-reporting laws does not cover every situation. Chuck Bell, programs director for Consumers Union, the advocacy branch of Consumer Reports, warns that “if you endure a protracted sickness or unexpected loss of work, it may not be enough to give you a fair shot to get back on your feet.”

Efforts to lessen the harm

It’s very uncommon for a medical bill that you never received, or even one you have previously paid, to end up in the collections department. A medical provider should be asked to take back a bill if you think it was sent to collections unjustly or prematurely.

Dispute any portion of your bill with the collection agency if you aren’t sure you owe it. It’s a good idea to challenge the debt in writing within 30 days after being informed of the collection.

You have the right to demand that the collection agency cease all collection efforts until you have received confirmation that the debt is legitimate. Debt must be removed from your credit record if it cannot or won’t. Sample letters to debt collectors are available online from the federal Consumer Financial Protection Bureau.

If the debt is valid, there are steps you may do to minimize the damage to your credit history:

  • Prioritizing medical debt above other debt is a bad idea. Remember that medical debt is considered more lenient in the credit rating process. Paying your medical payment instead of your mortgage or auto loan can hurt your credit report more than not paying your medical charge, according to the NCLC.
  • Don’t use medical debt as a pawn to pay off other debts. The NCLC advises avoiding borrowing money or using a credit card to pay for medical expenses. Medical debt does not include late penalties and is less likely to lead to a lawsuit than credit card debt.
  • You may still bargain to get a better deal with your provider or collection agency. You may still negotiate to get a better deal with your provider or collection agency. You may speed up your credit repair by working with the collection agency to pay off the debt in a method that you are comfortable with.