Does Medical Debt Affect Your Credit Score?

What We'll Cover

How medical debt affects your credit score
How to find out if you qualify for medical financial assistance
Steps to be financially prepared for a medical emergency

Are you worried about medical debt building up? You’re not alone in this financial struggle. In 2020, nearly four million adults ages 65 and older reported having unpaid medical bills, even though 98 percent of them had health insurance coverage. Middle-aged adults and Black Americans are also more likely to have significant medical debt, according to a report by Health System Tracker.

When medical assistance is vital to your health, it’s not like you can avoid service because of the price tag.

But unpaid medical bills can be detrimental to your financial health. Here we’ll cover the big picture of how medical debt impacts your finances – how does medical debt affect your credit score? What if you can’t pay your medical bills? And if you have the luxury of planning ahead, what can you do now to avoid going into medical debt?

Let’s dive in.

What is Medical Debt?

Medical debt is any balance owed after receiving a medical treatment, health care service or health product. Any bills you receive for the portion your insurance didn’t cover are what you owe. Whether you underwent surgery, received a new wheelchair or have recurring chemotherapy treatments, bills from all of these medical situations contribute to medical debt.

You might be able to pay the entire bill at once. Medical bills are often large though, and you may be able to work out a repayment plan with your provider. If your medical bill goes unpaid for a certain amount of time – usually at least 90 days – your provider will turn your medical debt over to collections. Every provider has their own practice, so some may wait 180 days while others wait only 60 days.

Does Medical Debt Affect Your Credit Score?

If you pay your medical bills before they go to collections, your credit will not be affected. Once your medical debt is sold to a collection agency, you have a one-year waiting period to resolve your medical debt before it appears on your credit record. If the reported collection account balance is under $500, the debt will not appear on your credit report and hurt your credit score.

This grace period is necessary because you may have to wait months for your insurance company to make their payment to the health provider. And even more likely, coding and billing errors can slow this payment process. The one-year grace period gives you time to work these things out with your provider and insurance company.

How Long Does Medical Debt Stay on Your Credit Report?

Even though you have a long grace period before medical bills show up on your credit report, you want to act fast. Once unpaid medical bills are on your credit report, the damage can take a long time to repair. Unpaid medical collection balances over $500 can remain on your credit report for seven years.

But once you pay these medical bills, they’ll be removed from your report, and you’ll see your credit score improve.

Medical Debt Best Practices

Once you receive a medical bill, here’s what you should do next to prevent medical debt from affecting your credit score:

Review your bill to ensure that it’s accurate.
Contact your insurance company and health care provider if you see any issues with your billing statement.
Follow up with your insurance company regularly until their portion is paid.
If your balance is higher than what you can afford, talk to your health care provider about setting up a repayment plan or look into whether you qualify for financial assistance (see the “What If You Can’t Pay Your Medical Bills? section below).

What If You Can’t Pay Your Medical Bills?

When you see a hefty medical bill, don’t panic. The good news is you have that grace period to figure out an action plan. There are steps you can take to either help lower your balance or get financial assistance.

First, follow the medical debt best practices listed above. The most important step to take at the beginning is reviewing your medical bill for errors. The medical billing system is complex and it’s common for consumers to see errors and inaccurate medical bills. The Consumer Financial Protection Bureau notes that the medical billing and collection system devotes insufficient resources to preventing, identifying, and correcting errors, so it really is up to the consumer to call them out on it.

Financial Assistance for Medical Debt

If you’ve gotten through all the best practices and you’re still stuck with a bill you’re struggling to pay, it’s time to find out if you qualify for financial assistance.

Financial assistance programs provide free or discounted health care to people who need help paying their medical bills. There may also be non-profit organizations or advocacy groups that can help you.

The Affordable Care Act requires hospitals with a 501(c)(3) nonprofit status to provide a Financial Assistance Policy. This policy must include eligibility criteria for financial assistance, a basis for calculating amounts that you’re charged, and how you apply. Start by asking your hospital for their Financial Assistance Policy and fill out an application form.

What resources are available for emergency financial assistance?

If the hospital’s Financial Assistance Policy doesn’t work out for you, consider the following resources:

Consumer Assistance Programs
Centers for Medicare and Medicaid Services
State agencies, such as your state attorney general, state insurance department or insurance commissioner
Consumer Financial Protection Bureau

How to Prevent Medical Debt and Be Financially Prepared

A medical emergency can happen at any time. The best way to prevent medical debt from piling up and hurting your credit is to prepare financially ahead of time, if you can. Yet, a 2020 study from Bankrate.com found that only about four out of ten Americans would be able to comfortably cover a $1,000 financial emergency.

Creating an emergency fund will help you financially prepare for medical emergencies, or really any emergencies that might come your way. An emergency fund is your own form of insurance to protect you during life’s unexpected events.

The standard for a healthy emergency fund is to have enough cash set aside to cover between three- and six-months’ worth of basic expenses. This could include your mortgage or rent, utilities, food, car payment, insurance, gas for your car, and any other expense that qualifies as a “need” in your life instead of a “want”.

While that may sound like the intent is to prepare you financially if you lose your income, you can also use your emergency fund toward medical expenses. Using the three- to six-month expense target is just a way to help you determine an amount to build up in savings.

Key Takeaways

Unpaid medical bills in collections adding up to over $500 can appear on your credit reports and stay on your record for up to seven years.
Once your medical collection debt is paid by you or an insurance company, the debt is removed from your credit report.
Review your medical bills for errors and work with your health care provider to negotiate a repayment plan if needed.
An emergency fund can help you be financially prepared for medical emergencies.

Medical debt can be frustrating, especially if it’s blocking you from maintaining good credit. Review your medical bills thoroughly to dispute any errors, and lean on the resources available for medical financial assistance. You don’t have to fight this financial battle alone.