Medical bill debt is a plague that affects millions of Americans. A recent Commonwealth Fund study shows that 41% of American adults had trouble managing their medical bill debts. Problems pile up as such debts have a major impact on credit scores or ratings. In these dire economic times, creditors are becoming stricter about credit scores – to receive credit cards or loans; you must have a score that is above 740 points.
Many doctors and hospitals, frustrated with slow payments from insurance companies, have resorted to the use of collection agencies. The problem has become so prevalent that I heard a story recently of a doctor that turns all of his third-party billing directly over to a collection agency. He does not even wait for the customary 30 to 60 days before converting his billing into a collection matter. Insurance companies are notorious for delaying payments and I truly believe this is a deliberate part of their business plan.
Do Medical Bills Affect Your Credit When Buying a House or a Car?
The simple answer is YES if the unpaid medical bills have been turned over to the collection agency. On the bright side, the latest FICO score version 9 does not take into account the paid medical collection and the medical bills only make up a small fraction of the scoring system. On the darker side, most collection agencies still use earlier version of the FICO score (FICO 8) which still count the medical collection as an important element in the scoring system.
As the majority of collection agencies still use the old FICO score, the unpaid medical bill can wreak havoc on your credit score. All it would take is for a medical collection to show up while you are in the midst of obtaining a mortgage or a car and you will likely face an increase in your interest rate. Despite a medical bill eventually being paid, it can still stay on your credit report for seven years. Your credit score affects any loan or credit application you submit. It will also affect your insurance rates in some states, approval for an apartment rental, and even play a role in an employment application.
Will medical collections prevent me from buying a home? No, as stated above, lower score will only result in higher interest rates when you apply for a mortgage.
How Long Do Medical Bills Stay On Your Credit Report?
Utilities, owners, and lenders are the top three sources of information that affect your credit report. Late payments can be detrimental to your credit, even if you never received an unpaid bill from a debt collection agency. For other types of debt, late payments or missed payments only show up on your credit score if the debt has been reported to a collection agency.Therefore, the only way that a bill can affect your credit score is if an unpaid bill is turned over to collections. Should that happen, the collection agency reports the case to the three major credit bureaus. Once the agency makes the report, the black mark remains on your credit report for up to seven years, just as if it were any other unpaid bill.
How Medical Bills And Credit Collide
The current credit system doesn’t differentiate between defaults on medical bills and other credit mistakes. When lenders look at your credit report, they’ll see a collection action on your record, not the reason for the collection action.
The problem with hospital bills and credit is caused by the healthcare system’s billing practices. After you receive hospital care, you may not be billed for all services at once. Instead, you receive partial bills from different departments within the same hospital. For example, you may not be billed for preliminary lab work until months after your care was completed.
If you have insurance, the complexity of medical bills increases because now all of the paperwork is routed through your insurance carrier. In the bizzare world of hospital billing, the natural delay caused by dealing with the middleman, your insurance company, may cause portions of your bills to be sent to collections.
How to solve this problem
One way is to confront debts before it reaches collections. It may be very unfair for you to pay your hospital bills, which is actually the responsibility of your insurance company. However, you are in for a big problem if you do not pay the bill, in the end, the amount you end up paying could be higher than what it was supposed to be.
Keep your unpaid bill from reaching collections by talking to the hospital’s billing department, saying you are waiting for your insurance company, and putting medical bills into dispute. This will keep your unpaid bill in limbo while you and the insurance company slug it off. Do not take it for granted that your insurance company will pay the bills. You must also avoid making arrangements with the billing office as their system will fast track it over to a collections agency, and eventually to your credit company.
Removing Paid Medical Collections From Credit Report
Once your unpaid medical bill goes to a collection agency, you will have a much harder time rectifying it. In such case, you will need to contact the credit agency directly and set off a dispute. You can dispute a medical bill debt over the phone, online, or in writing. You will need to show evidence that your insurance company was responsible for paying off your medical bill. If the company refuses to pay stating that your health plan does not cover it, try to resolve this issue at your doctor’s office.
In both cases, you will need to document every communication you had with the insurance company and the hospital to send to a credit reporting agency. Include detailed information such as dates, times, a copy of pertinent sections in your insurance manual, and people you spoke with at the insurance company as well as your doctor’s office. Show them anything that will support your case and send them a dispute letter.
You can file a dispute online at each of the three major credit bureaus: TransUnion Consumer Solutions Experian, and Equifax Information Services, LLC. The Fair Credit Reporting Act requires the credit agency to investigate within 30 days upon your request.