Medical expenses do not show up directly on your credit score, but they can dramatically affect that rating. That's largely because of the complexity of the medical payment system, with multiple bills from doctors, clinics, hospitals and other service providers and shared responsibility for payments among individuals and insurance companies. Any bill that slips through a crack can create a situation that damages a credit score.
Medical bills are not reported directly to credit rating agencies, but any bill not paid promptly and in full may be turned over to a collection agency, which will report it as an unpaid bill. A Federal Reserve study found that about half of all bills sent to collection were for medical expenses. Medical providers increasingly use third-party services to bill patients and insurance companies and these are quick to turn to collection.
You May Be Unaware
You may not even realize your bill had not been paid. A complex medical situation may involve multiple physicians, providers and insurers, making it easy for some bill to not be paid in full. You may pay what you think is a balance you owe and never be notified that an insurer denied part of the claim, so the bill was not paid in full.
Amount Doesn't Matter
It doesn't matter whether the amount is $10 or $1,000; if it's turned over to collection it is reported essentially as a bad debt and can drive your credit rating down 100 points or more. MyFICO, which produces a score used by most lenders, makes no distinction between unpaid medical bills or other bills once they are turned over for collection. Collections weigh more heavily on credit scores than simple unpaid bills.
You can protect yourself by watching all medical bills closely and questioning providers about what portion has been paid by your health insurance. This can be difficult with several billing agenies that bill at different times. You also can ask your insurer for an accounting or explanation of what bills were paid or why they were not paid in full. A coding error, for instance, can result in a claim being denied because a clerk reported the wrong number for a procedure.
Monitor Your Score
You also can request copies of your credit report from the three credit bureaus and can check your FICO score at MyFICO.com. It's always a good idea to check your credit rating after any medical procedure, especially if it's a complex one with several physicians, ambulance service or emergency care and extended recovery. Those bills can be complex, and even a minor omission can result in a collection.
Medical providers are not required to warn you before a bill is sent to collection. Collection agencies also may not contact you until after the collection has been reported to the credit services, so you may not have a chance to avoid the report. There also may be more than one insurer involved, and disputes over responsibility can sometimes delay payment.
- New York Times: Discrepancies on Medical Bills Can Leave a Credit Stain
- New York Times: Protecting Your Credit Score From the Medical Bill Maze
- MSN Money: 4 Costly Medical Bill Myths
- Legal Match: Medical Bills and Credit Scores
- Credit Report.com: How Unpaid Medical Bills Can Ruin Your Credit Score
- Privacy Matters: Medical Debt and Your Credit Report