Questions regarding your credit generally do not have a simple cut and dried answer. Instead, credit-related questions more often require the rather ambiguous and sometimes frustrating response of, “It depends.” The answer to the question “How will medical bills affect my credit?” is no different.
The impact your medical bills will have on your credit reports and credit score is going to depend on a variety of factors. Sometimes medical bills can be extremely damaging to your credit reports; sometimes they will have little impact; and sometimes medical bills will not impact your credit in any way whatsoever.
When Medical Bills Do Not Matter
The good news is that medical bills do not have to spell trouble for your credit reports and scores. The myth that medical bills will automatically damage your credit scores is, well… a myth. In fact, it is only unpaid medical debt which typically leads to credit problems in the form of collection accounts and potential court judgments.
If you have outstanding medical debt that is not being paid in full by your insurance provider (or is not being covered by insurance at all) the first step you should probably take is to give your medical service provider a call. In fact, even if you have health insurance, it’s important to be sure that you’re not responsible for any co-pays or deductibles.
If you find yourself holding the check for any uncovered medical debt, keep in mind that many (though not all) medical providers are willing to set up affordable payment plans. In the event a payment plan is accepted by your medical provider, you can generally keep unpaid medical debt from ever turning into troublesome medical collections as long as you consistently hold up your end of your payment agreement.
When Medical Bills Do Matter
As alluded to above, ignoring your medical bills is a mistake, potentially a very big mistake, in the credit score department.
Unpaid medical bills generally turn into medical collection accounts, and sometimes can even lead to judgments if your creditor decides to sue you for your outstanding debt and you lose the case.
The addition of any new collection account to your credit reports is likely to be problematic, but the degree of the damage is going to depend upon other score factors from your credit reports.
Credit scores tend to take the path of least resistance. That is to say, it is easier for a good credit score to turn into a bad score than it is for a bad credit score to turn into an abysmal score. If you already have problems with derogatory information appearing on your credit reports, then adding one more medical collection account to the mix may not have much additional negative impact on your credit scores. However, if your credit is currently problem-free, then the addition of a collection account, even “just” a medical collection, could potentially have an extremely damaging credit score impact.
Debunking the Myth
Many consumers incorrectly believe that medical collections are actually insignificant when it comes to the calculation of their credit scores. To be fair, in newer credit scoring models (such as FICO Score Version 9 and VantagesScore 3.0), medical collections generally do cause less credit score problems than other types of collections might cause.
However, while this special treatment of medical collections might sound like good news for consumers who are currently facing this credit problem, it’s important to keep in mind that most lenders, especially mortgage lenders, still rely on older versions of the FICO credit scoring model. These older credit scoring models will still judge the existence of medical collections just as harshly as any other type of collection account.
Therefore, if you plan to use your credit to apply for a loan or credit card in the future, your medical collection accounts could potentially cause you problems.
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John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.