How Do Medical Bills Effect Your Credit?

Medical Debt and Credit Impact

First, the good news: Medical debt may not have much of an effect on credit scores. Because it's often not factored into the utilization ratio that composes a FICO credit score, that number doesn't change. However, this isn't the case if the bill is presented to a collection agency. The collection agency purchases the debt for pennies on the dollar, then profits from obtaining payment on the past due amount. If they're not paid, the collection agency may then file a negative report against the debtor. Fair Isaacs senior scientist Ethan Dernholm says, "The precise impact to the FICO score will depend on the other info contained in the credit file."

The Reality of Medical Debt

Even people with insurance can find themselves in a bad spot with medical debt. Due to caps in lifetime spending, a serious illness can result in hundreds of thousands of dollars in treatment that quickly top expenditure ceilings. "Over 60 percent of families who report having medical debt problems are covered by medical insurance. In fact, 75 percent of people who filed for bankruptcy because of medical debts had health insurance," writes Emily Davidson of Credit.com. Many patients attempt to avoid trouble by obtaining charity care or by signing up for payment plans, but those remedies may be hard to obtain, or may even increase debt in the long run.

Ways to Avoid Medical Debt Problems

The best way to avoid credit impact from medical bills is to avoid the bills in the first place. This means taking good care of yourself, taking advantage of preventive treatment and medicine, and getting the best insurance your money can buy. Review hospital bills before signing off after treatment to catch billing mistakes and double charges, and try to pay some of the expense with lower-interest credit, if need be. Explore alternative treatments that may have a lower cost, and don't be afraid to be honest with doctors about financial realities and ability to pay debt. Simply being educated and focused on the financial process can help in avoiding problems post-treatment.