A positive credit record demonstrates to lenders, employers, credit card providers and even insurance companies that you represent a low financial risk to the company. Each time a company reports financial information about you to the credit bureaus, this data affects your overall credit scores. Medical accounts are no exception. Unexpected medical debt you cannot afford will tarnish your good credit rating. Fortunately, if a medical debt appears on your credit report, its only temporary.
Medical Collections
Health care providers do not have an ongoing financial relationship with you and therefore have little incentive to become a member of the credit bureaus' reporting system that allows members to report accounts and payments on debtors' credit reports. If you leave medical debt unpaid, however, your health care provider will sell your account to a third-party collector in an effort to recoup some of its losses. Thus, if a medical account appears on your credit report, it likely has a derogatory effect on your credit rating.
Time Frame
The Fair Credit Reporting Act requires that collection accounts -- including medical collections -- all adhere to a seven-year reporting period. This does not mean, however, that a medical account only appears on your credit report for seven years. The reporting period for collection accounts does not begin until you miss 180 days' worth of payments. Because of this, a derogatory medical collection has the potential to remain on your credit report for 7 1/2 years total.
Medical Debt Judgments
A medical collection account isn't the only way your unpaid health care debt can appear on your credit rating. If the care provider or collection agency sues you, a judgment for the debt may also appear on your credit report.
Judgments are public records reflecting a court's decision in a lawsuit. These derogatory entries can linger within your credit history for much longer than seven years. The FCRA permits the credit bureaus to leave judgments in place on your credit report for the same length of time that the creditor legally has to enforce its judgment. If your state's laws note that judgments remain in effect for 10 years, for example, the medical judgment will continue to appear on your credit report until the 10-year enforcement period expires.
Considerations
Although a medical collection on your credit report lowers your credit scores, it may not prevent you from qualifying for a loan or credit card. Unlike standard collections, medical collection accounts do not signify that you were irresponsible with money or took on more debt than you could afford. It simply indicates that you fell unexpectedly ill or lacked enough insurance coverage to pay off your medical bills -- neither of which makes you a higher risk to lenders. For this reason, some lenders overlook medical collection accounts altogether when evaluating consumer risk.
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