We all know that a large medical bill is one of the most inconvenient and stressful financial burdens you can possibly have in today’s economy. Right as you’re in the process of recovering from a serious illness or injury, you’re forced to contend with a hefty bill that can single-handedly undermine a budget. And while some people have the rainy day funds necessary to pay off those debts, there are still millions of Americans who do not have the financial resources to take care of their medical bills any time soon. As a result, many people who recently had medical emergencies are declaring bankruptcy just so they can get out of debt.
Out of the many impacts that come with unpaid medical bills, damage to your credit score is one of the most consequential. Technically, a medical bill can not be included in your credit report, but once your account remains unresolved after 180 days, the owner of the debt–typically, a hospital or a doctor’s office–can sell the outstanding amount to a debt collector. At that point, the debt collector can (and probably will) report your debt as delinquent to all three credit agencies, thereby harming your credit score.
A damaged credit score could make the recovery process even tougher, since it could prevent you from qualifying for important loans, like home mortgages and auto loans, which serve as valuable assets as you get back on your feet. Below, we’ve included an explanation of why a medical bill could be negatively affecting your credit score, and what you can do to address the issue. Follow any of the below steps, and you should be well on your way towards improving your score.
Search for Errors and Inconsistencies
If you have a medical collection account on a credit report, there’s always a chance that some of the information on your report is erroneous, and therefore causing undeserved damage to your credit score. Before doing anything else, then, you’ll want to compare the records of your medical bills as they appear on your credit report with the original bill that the hospital issued. Upon investigation, you might find that the credit report has mistakenly inflated the amount due or misrepresented the services for which you owe money. Such mistakes could point to deeper inconsistencies that might have taken an undue toll on your credit score.
If you don’t have the paperwork necessary to make these comparisons, you’ll want to contact your debt collector directly and request documentation of your debt. Within five days of receiving your request, the collection agency must be able to provide a debt validation letter that includes, among other things, the amount owed.
If the documentation provided proves that the information on your credit report is inconsistent with the amount you actually owe, you should have no trouble disputing the error on all three of your credit reports. There are even some rare cases in which the debt provider is unable to fully validate the debt due to inadequate documentation. This renders the debt invalid, and relieves the borrowing party of their obligation to pay it back. This last scenario is extremely unlikely, but it’s not altogether impossible.
Dispute the Debts
If a medical bill that’s already showing up on your credit report is less than 180 days overdue, or if you do find an important inconsistency between your credit report and the original bill, then you have reason to contact the credit bureaus and demand that the medical bill on your report be expunged or modified, depending on the nature of the misreporting.
In order to support your case, you should collect all of the available documentation–including invoices, receipts, and credit card statements–that proves your medical debt was reported incorrectly. You should then use that documentation to file consumer disputes with all three of the three credit bureaus (Experian, TransUnion, and Equifax). If you can unequivocally show that the medical bill is less than 180 days old or that the amount owed was misreported, the credit bureau should correct your report within 30 days. Check out our article on How to Fix an Error on Your Credit Report for more guidance on this process.
Negotiate a Settlement
If the medical bill on your credit report is accurately reported, there are still plenty of resources you can use to lessen any damage to your credit score. Check your savings account and see how much you could afford to pay without compromising your overall financial outlook. Once you’ve determined an amount, contact your debt collector and explain that you’re willing to offer a lump sum of money in exchange for debt forgiveness. Since many debts are purchased for a small fraction of the original amount owed (sometimes as little as 10%), your collection agency might be willing to settle your medical debt for as little as half of the original balance.
Send a Pay for Delete Letter
Even if it has already been paid off in full, a collection account with any history of delinquency will still damage your credit score as long as it remains on your credit report. If you’re making a settlement offer or paying the bill in full, you should be sure to send a pay for delete letter to your credit provider. This letter will ask the collection agency to remove the account from all of your credit reports in exchange for your settlement. If they accept your offer and agree to a Pay for Delete arrangement, make sure they provide a written guarantee that they will delete all records of your account upon payment. With this document, you’ll have all the evidence you need to remove the medical bill from your credit report as soon as the debt is resolved.
Wait for Your Credit History to Update
If a medical bill you’ve already paid off is still on your credit report, there’s probably very little you can do but wait. But don’t worry, there is an end in sight once you have finished paying off your debt. Thanks to the Fair Credit Reporting Act, resolved medical accounts can only remain on a credit report for up to seven years. And as you wait for that date to arrive, the debt will get older and your credit history will expand. This means that the medical bill’s impact on your credit report will dwindle before your slate is finally wiped clean.
There’s more good news: recent updates to the FICO credit score dictate that unpaid medical collections receive less weight than other forms of debt, since studies show that millions of people with otherwise spotless credit are struggling to pay off medical bills. The new FICO Score also disregards any medical collection accounts that have already been paid off. Since FICO Score 8 remains the most commonly used credit score, however, most credit inquiries still include paid off medical accounts.
The Bottom Line
Whether you’re trying to remove a debt that was erroneously placed on your credit report or hoping to pay off that bill for your recent visit to the ER, there are many ways to minimize the impact that a medical expense has on your overall financial outlook. Take a moment to assess your options, and choose the most realistic plan of action. While credit bureaus work to reduce the impact that medical bills have on your credit score, there’s a lot you can do to take matters into your own hands.