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How Do Medical Bills Affect Your Credit Score?

By Ciele Edwards ; Updated June 13, 2017

Medical care in America is costly, even for those with insurance. Leaving medical bills unpaid can have an adverse effect on your credit, leaving you paying higher interest rates on future credit for which you apply. You even face the possibility of being turned down for credit and loans due to unpaid medical bills on your credit report.

The Basics

Unlike credit cards or loans, medical bills that aren’t in collections or for which you have a payment plan do not appear on your credit report. Leave a medical bill unpaid, however, and the hospital or doctor’s office that you owe will eventually send it to a collection agency. Collection agencies often report medical debts to the credit bureaus. Collection accounts are detrimental to your credit score and, according to the Fair Credit Reporting Act, can remain on your report for up to seven years.

Significance

A 2009 CNN report lists medical bills as the underlying cause behind more than 60 percent of all U.S. bankruptcies. When medical bills lead an individual to file for bankruptcy, his credit automatically suffers as a result. Bankruptcy is one of the worst notations you can have on your credit report and can drop your credit score by as much as 300 points.

Benefits

A small percentage of unpaid medical bills can slip by undetected. Although they may appear on your credit report, they won’t impact your overall score. The FICO 2008 credit scoring formula, released in 2009, doesn’t include collection accounts under $100 in its calculations. Thus, a medical collection below the $100 mark will show up for lenders that review your actual report, but won’t impact your score. Like other collection accounts, small collection accounts are removed from your credit report after seven years.

Considerations

Although medical debts can appear on your credit report and hurt your credit score, not all lenders view them the same way. While some lenders and creditors pull only your credit score, some, such as mortgage lenders, pull both your credit score and credit report. Credit.com quotes Lyndal McLaughlin of Fairway Independent Mortgage as stating that some mortgage underwriters do not place as much importance on medical collections when reviewing mortgage applications. Thus, although a medical collection may damage your credit score, it may not damage your chances of getting approved for a mortgage.

Warning

While a small medical debt may not affect your credit score, not paying the debt can result in a lawsuit from the collection agency. If you do not appear in court with a solid defense against the lawsuit, the judge may award a judgment in the collection agency’s favor. This judgment will then appear on your credit report. Judgments are public records which, like bankruptcies, can do catastrophic damage to your credit score.

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