How Does Medical Debt Hit Your Credit?

Any medical debt you incur that you do not pay could result in damage to your credit. Unfortunately, outstanding medical debt in America is relatively common. A 2008 study conducted by The Commonwealth Fund, a private health care analysis foundation, noted that 79 million Americans carry medical debt. Making arrangements with your health care provider to pay your debt over time can help you avoid the potential credit damage of unpaid medical bills.

Credit Reporting

Hospitals, doctors' offices and other health care providers do not report patient accounts directly to the credit bureaus, but collections agencies do. By establishing payment arrangements with your health care provider, it keeps them from sending your account to a collection agency. Regardless of the type of debt you owe, once a collection agency owns your account, the report it makes to the credit bureaus will be derogatory---even if you make payments to the company.

Credit Impact

After medical debt hits your credit report, your credit score will suffer---but the degree to which your score drops depends on your credit history. The information already present in your credit report determines your credit score. Factoring in a collection account, therefore, could severely damage your credit or only cost you a handful of points. If you owe less than $100, however, your credit score itself will not drop. The FICO scoring formula released in 2009 does not include collection accounts under $100 when calculating scores.

Time Frame

The generally accepted time frame for creditors to sell unpaid accounts to collection agencies is 180 days. This time frame, however, applies primarily to credit card companies. Medical service providers often transfer accounts to debt collectors long before you go six months without making a payment. This policy varies by provider. Once the medical debt appears on your report as a collection account, the Fair Credit Reporting Act states that it can remain there for up to seven years.

Further Damage

Do not assume that once your health care provider sells your unpaid bills to a collection agency that the worst is over. If the collection agency files a lawsuit against you, a court judgment appears within your credit history. Court judgments, like collection accounts, are derogatory and once one hits your credit record, your score will drop even further.