How medical debt affects your credit score

Don't use that post-surgery fog as an excuse to ignore medical bills, even if you're still contesting them with your doctor or health insurer. Otherwise, your credit score will need to heal, too.

Medical debt is the most common type of collection account, representing nearly half of all reported collections. Almost 1 in 6 credit reports contain a medical debt collection, according to the Federal Reserve. And about 2 in 5 Americans reported a lower credit rating last year due to unpaid medical bills.

The damage a medical collections account can do to your credit can be devastating, making it harder to get loans at low interest rates. A new proposed bill would give consumers more time to resolve medical bills before they show up as collection items. But many consumer advocates want these types of collections excluded altogether from credit reports, saying they don't reflect a person's credit risk.

"There's a lot of controversy, but it's not our role to tell lenders what should be considered," says Maxine Sweet, vice president of public education at credit reporting bureau Experian. "More than any other debt, it requires consumers to work harder to protect themselves."

Damage to credit

Any collections item, medical or not, can lower a person's FICO credit score by as much as 100 points, says Anthony Sprauve, spokesman for Typically, if you have a higher credit score, a negative item will hurt more than if you had a lower credit score.

The injury to your credit score will lessen over time, but the item will stay on your credit report for seven years. Federal law requires negative items to drop off credit reports within that time. (The only exception is bankruptcy, which can stay on a report for 10 years.)

There is some good news: The latest version of the FICO credit score ignores all collection items less than $100, which accounts for more than a third of all medical debt reported to debt collectors.

The newest VantageScore model doesn't count collections accounts that have been paid. It also doesn't consider medical debt that is reported by a medical provider. It only takes into account medical debt reported by collection agencies.

Is it fair?

Whether medical collections should be included in credit reports is an ongoing debate. FICO stands behind the predictive power of large collections, even though the company has not tested medical collections by themselves. VantageScore also has not specifically tested how predictive medical collections are.

"We philosophically don't believe in throwing out data arbitrarily without knowing its value," says Sprauve. "We have spent time looking at collections in general, not specifically medical, and they are predictive."

But some consumer advocates say unpaid medical bills are an unreliable predictor of risk. Some credit evaluators surveyed by the Federal Reserve in 2004 said they remove medical debt collections when they consider an applicant because they often represent disputes with an insurer and aren't a good indicator of loan repayment.

"People are making calculated decisions when taking on a car loan or credit card," says Amy Traub, senior policy analyst at think tank Demos. "With medical debt, it's your life that's at risk or your child's life. It's a catastrophic event."

Medical billing mistakes

Then, there are the mistakes. Bill Bartmann, founder of debt collection agency CFSII, said about 20 percent of medical claims his firm receives from medical providers are inaccurate.

"Either they were overcharged or billed for things they didn't receive," he says. "Or there was insurance coverage that should have paid but didn't."

California Rep. Gary Miller introduced legislation in May that would help alleviate inaccurate medical claims. The bill prohibits debt collectors from reporting a medical collections for 120 days if the consumer is still negotiating with their insurer, disputes the amount or the debt entirely, or is applying for financial assistance. The bill is currently in committee.

What can you do?

In the meantime, stay vigilant after receiving medical care. Keep track of the services and items you receive in the hospital and the doctors who treat you, all of which could mean a separate bill. This will help you sort the bills when they come in, often months after a hospital stay.

Depending on the medical provider, your claim could get forwarded to a debt collector anywhere between 90 to 120 days after you are billed, says Bartmann. Call your provider or insurer if you have questions about a particular bill or item. Keep each party in the loop. For example, if you're filing an appeal with your insurer, let your doctor know so they don't send the claim to collections.

When in doubt, pay the bill before the claim hits your credit report, says John Ulzheimer, president of consumer education at Then, go after your insurer for reimbursement.

"It's easier to keep something from going into the collections. It's a lot harder to get a collections off your credit report," he says. "Choose to lose the battle and continue to win the war."

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