Can Overdue Medical Bills Hurt Your Credit Report?

Medical facilities usually handle bills differently than credit card companies and lenders, and it's important for patients to understand the differences to avoid problems with their credit rating. Otherwise, patients may find even a small past-due amount on a medical bill cited as a collection account on their credit reports.

Process

Delinquent medical bills have a negative impact on a consumer's credit report just as other delinquent debts do. However, the Experian credit-reporting company indicates that past due medical bills usually don't appear on credit reports until debt collection agencies receive them. Unlike other businesses, medical facilities generally sell patients' unpaid bills to collection agencies without first reporting late payments to credit bureaus. Worse yet, medical bills sometimes go unpaid because it's hard for patients to determine what their insurers have and haven't paid.

Credit Ratings

Patients' credit ratings fall after a medical bill transfers to a bill collector, even if patients owe a medical provider a small amount of money. "San Francisco Chronicle" columnist Kathleen Pender reports a mortgage banker found that more than 40 percent of people who applied for mortgages with his company had delinquent medical debts on their credit reports that caused steep declines in their credit scores. The banker noted that many of the medical debts totaled $100 or less.

Credit Scoring

Collection agencies may not try to recoup small medical debts because they don't profit much from collecting small debts. The problem for patients is that agencies report delinquent accounts to credit bureaus even if they don't collect the debts. Unpaid collection accounts can be the most damaging to your credit score because a consumer's payment history usually carries significant weight in credit-scoring models. For example, payment history impacts 35 percent of the FICO credit score, so delinquent accounts can quickly drag down the score.

Considerations

Attempt to quickly resolve a billing problem with your medical provider before the debt goes to a collection company. It's usually easier to deal directly with the provider than a debt collector. Try to work out a payment arrangement with the provider if you can't pay your bill in full. The provider may be willing to work with you to get a full payment because companies typically only get pennies on the dollar for the debts they turn over to collection agencies.