Are Medical Bills Excluded for Credit Evaluations?

Lenders reviewing your credit profile consider both your debt level and your positive and negative accounts. The more negative accounts that appear within your credit history, the higher risk the lender incurs by approving your application. Medical debts appear on your credit report as collection accounts and can derail your ability to qualify for the credit card or loan you want.

Credit Reviews

Just because you owe outstanding medical debt does not mean that the debt shows up on your credit report. Provided you arrange a payment plan with your health care provider and make your payments on time, the provider has little reason to send your account to a collection agency. Health care providers do not submit reports to the credit bureaus. Because of this, a prospective lender has no way of knowing you owe medical debt that does not appear on your credit report unless you volunteer the information. This results in the lender excluding your medical debts from a credit evaluation.

Collection Accounts

Collection accounts on your credit report demonstrate a poor debt payment history to lenders. Unpaid medical debts your health care provider sends to a collection agency could adversely impact credit and loan applications in the future. The way a lender views your medical debt depends on the lender. Some lenders view all collection accounts in the same negative light while others do not consider medical debt an indicator of future nonpayment since medical care---especially in emergency situations---is not optional. In this situation, provided the other accounts within your credit profile are current, medical debt hurts your chances of approval less than other forms of unpaid debt you carry.

Additional Lending Risks

The creditor to whom you owe your medical debt has the right to file a lawsuit against you if you do not pay it off. A lawsuit and judgment forcing you to pay off your medical bills may leave you unable to keep up with payments to other creditors. Lenders take lawsuit risks into consideration when evaluating how your medical debt impacts your application.

Yet another factor lenders consider is whether your medical debt is high enough to force you into bankruptcy. A bankruptcy petition incorporates all of your debt. Thus, if the lender approved your application, it would risk its debt being discharged through bankruptcy alongside your medical bills---even if you had applied for the new account in good faith.

Reducing the Damage

You can avoid lenders taking your medical debts into consideration by working out a payment plan or settlement with your health care provider and making regular payments on time. Doctors and hospitals often send unpaid accounts to outside agencies more quickly that other creditors. Thus, it's crucial that you act quickly in order to avoid credit damage.

Should credit damage occur, the Fair Credit Reporting Act allows you to include a consumer statement up to 100 words within your credit record explaining the circumstances surrounding the negative entry. The credit bureaus will then remove the medical debt from your credit report after seven years.