Do Medical Bills Affect Your Credit?

Having a serious illness or injury can be hard enough without the added financial stress of medical bills that make matters more challenging. Nearly half of insured people said they find it financially difficult to pay their medical bills, according to an October 2021 survey.¹ Meanwhile, almost 20% of Americans have unpaid medical debt² – contributing to a nationwide medical debt that the Consumer Financial Protection Bureau conservatively estimated to be at least $88 billion in 2021.³

Understanding how medical bills are handled by doctors and medical facilities, and the rules about when unpaid medical bills can show up on your credit report, can help you strategically prevent medical debt from negatively affecting your credit.

Some good news is that in March 2022 the three major credit bureaus – Equifax, Experian, and TransUnion – announced new rules that reduce the chances consumers will see their credit reports be negatively impacted by medical debt.⁴

Generally speaking, doctors and health care facilities don’t directly report bill payment history to the three major credit bureaus. Instead, if you or your insurer doesn’t pay the bill, the health care provider may turn your bill over to a debt collection agency. This action can take anywhere from 30 to 180 days after the billing date, according to the Consumer Financial Protection Bureau (CFPB).⁵

Paying your bill as soon as possible, or working out a payment plan with the health care provider, is the best way to make sure medical debt doesn’t end up at a collection agency. But even if a medical bill is sent to collections, you’ll have additional time to pay it off before your medical debt will negatively affect your credit score.

Normally, if you have any unpaid debt that is turned over to a collection agency, it immediately counts as an adverse item on your credit report that will, in turn, hurt your credit score. 

But the three major credit bureaus – Equifax, Experian, and TransUnion – treat medical debt differently from typical consumer debt. In 2017, the three bureaus agreed that unpaid medical bills that have been sold to a debt collection agency would not be included in your credit report for 180 days. And on July 1, 2022, that grace period was extended to one full year.

That gives individuals more time to navigate the world of insurance billing – and more time to pay off the balance. Bills paid within the grace period window will not impact your credit report or your credit score.

The three credit bureaus have also announced that in the first half of 2023 they plan to roll out a new reporting system that will no longer include unpaid medical debt below $500.

Under the new rules that went into effect on July 1, 2022, unpaid medical debt that has been turned over to a collection agency will show up as a line item in your credit report after one year, assuming it is for more than $500. The impact on your credit score depends on the credit scoring model used.  

As of early 2022, FICO Score 8 is the most widely used scoring model. The impact to your credit score can be 50 points or more, according to the CFPB.⁶ And the higher your credit score, the bigger the potential ding.

The good news is, the newer FICO Score 9 assesses medical debt differently from an ordinary collections account. For example, if you have an unpaid medical bill that shows up on your credit report, it won’t hurt your credit score if you eventually get the bill paid. And even if a medical debt remains unpaid, FICO 9 treats medical debt in collections less harshly than other types of debt that are sent to a collection agency.⁷

The credit bureaus have also announced a change in how consumers with old medical debt issues will be treated. In the past, medical debt that was paid off after being sent to collections still showed up on a credit report for seven years. As of July 1, all old, repaid debts will no longer show up on a consumer’s credit report. The three credit bureaus estimate this change will wipe out nearly 70% of the medical debt accounts currently showing up on consumers’ credit reports.⁸

The best way to avoid any negative credit impact is to keep your medical bills from being handed over to a collection agency. The following tips can help:

Make sure you’re not charged for unavoidable out-of-network care. If you have health insurance, choosing doctors and facilities in your network can save you bundles. Though individuals don’t always have a choice of facility or provider, a new federal law aims to offer financial relief from any “surprise” medical bills associated with unwittingly receiving care from an out-of-network doctor or facility.⁹ The law went into effect in January 2022.

Specifically, the new law prohibits you from being billed extra in situations in which you’re unable to choose your provider, such as receiving emergency care at a facility that is out of network or being treated by a health care provider not in your plan’s network. 

You’re also protected if you get care from a doctor or hospital that is in your health insurance plan’s network, but somewhere along the line an out-of-network doctor provides care. For instance, an anesthesiologist or radiologist you have no role in choosing may be out of network.   

Build up savings to cover medical bills. Every health insurance plan has a maximum out-of-pocket (OOP) cost you can be liable for in a calendar year. Find out your plan’s OOP max, and then make it a goal to tuck away at least twice that much in an emergency savings account. Why twice the amount? In case of ongoing illness or injury. For example, if you receive a diagnosis in September that you’ll still be treating come January, you’ll have two OOP costs to fill within four months.  

Be proactive if you can’t pay the bill in full. Don’t take a head-in-the-sand approach if you can’t cover the bill with one quick payment. It’s important to ask your health care provider if it will agree to a payment plan arrangement. This way, you can pay the bill over a few months, instead of in a lump sum.

Consider saving in a Health Savings Account. If you have a high-deductible health plan (HDHP), you may be eligible to set aside money in a Health Savings Account (HSA). What’s more, some employers offer a matching contribution for money set aside in an HSA, making it a good way to build up savings to cover out-of-pocket medical costs. That said, it makes sense to consider opening an HSA only if you already have enough set aside in savings to cover the higher deductible you must pay before coverage kicks in – the average deductible for an HSA-qualified, single-coverage HDHP is nearly $2,500, and $4,500 for family coverage.¹⁰