Even when you have health insurance, medical costs can add up, forcing you to borrow in order to pay your bill. While it would be nice to think that the debt you incur for health care costs won’t ruin your credit, the reality is that, like any debt, can impact your credit score.
“Medical debt that appears on your credit report normally hurts your credit score, no matter the reason for how it got there,” says Kevin Haney, a former sales director for a “big three” credit agency and the publisher behind SavvyOnCredit.com. “Medical debt can be reported by the providers, collection agencies, and through public records if the creditor files suit in court.”
Medical debt and your credit score
How medical debt impacts your credit score also depends on the scoring model being used to determine your score. According to Haney, the latest iteration of VantageScore ignores medical debts that have been paid off. Once you discharge your medical debt — no matter the size — it won’t affect your VantageScore.
Things are different with FICO, though. Haney says that FICO 8 ignores medical debt accounts of less than $100. FICO 9 differentiates between collection accounts resulting from medical debt and non-medical collection agency accounts. Medical debt that has been sent to collections will have a smaller impact on your score than non-medical collection accounts.
However, Haney points out, “Not every lender uses the most current version of credit scoring models.” This means that your medical debt might still count against you, depending on how it is reported, and which scoring model and version of that scoring model are used. In general, though, it’s safe to assume that your medical debt is likely to have some impact on your credit score, especially if you have missed payments. Any debt account that isn’t kept up to date will drag on your credit score.
How to reduce the impact of medical debt
“The best way to keep medical debt from dragging down your score is to keep it off your consumer report,” says Haney. In many models, paying off your medical debt can also prevent it from having a big impact on your score. The good news is that medical debt is in a class by itself when it comes to your credit report and your score.
Haney suggests working with your health care provider. The information on your credit report appears there because it has been reported by a creditor or service provider. This means that if you can work out a payment plan with your provider, and you stick to the terms, there is a good chance that it won’t be reported to the credit bureaus. “Most providers will not report medical debt when consumers are actively communicating, and making an earnest effort to resolve open claims issues with insurers, and paying down the balance,” Haney says.
Many hospitals and other health care service providers offer payment plans for expensive procedures. Additionally, you can usually find reasonable payment terms if you have a high deductible. The problems come in when you stop making payments as agreed and the provider feels like the account needs to be turned over to a collection agency. “Most providers do not have systems to report,” says Haney, “but collection agencies do.”
Also, be aware of the difference between organizing a non-loan payment plan with your provider and the “payment plans” offered as loans through third parties. These types of plans are commonly offered by dentist offices and vision specialists. You are referred to a payment plan, but this plan is actually set up through a third-party and is a special financing arrangement. In some cases, these arrangements are reported as the loans they are, and appear on your credit report. Understand the distinction before you agree to a payment plan.
Paying off your medical debt can also reduce the impact on your credit score. Increasingly, there is pressure for credit scoring models to stop “counting” medical debt — even collection agency medical debt — once it has been discharged. Make an effort to pay off your medical debt, and you can reduce its impact on your credit score.
Watch out for identity theft
Finally, be on the alert for fraudulent medical debt. Medical ID fraud is a growing problem. Someone might use your information to receive health care, and then skip on the bill. This results in medical debt in your name. Check your credit report regularly for these types of fraudulent accounts. If you notice billing for a medical procedure that you didn’t have, follow up and dispute the account. You will likely need to prove to the health care provider that you weren’t the one who received the treatment. This can be difficult to clear up, and it’s even harder the longer the account sits, so make sure to check your credit report regularly for errors and fraud. Quizzle offers identity theft protection with its Pro+ accounts.
Like any other debt, medical debt can impact the way financial companies view you. Your best defense is to keep on top of the situation, and try to avoid falling behind.