Medical debt is the number one cause of bankruptcy in the United States. Even after new health care legislation, this continues to be the case.
A relatively minor surgery can easily add up to tens of thousands of dollars in medical bills. Serious issues can cost millions.
Unlike a lender for a car or home, typically, doctors and medical providers don’t report your medical debt to credit reporting agencies. At least not immediately. They will turn your debt over to a collection agency after it goes unpaid a certain amount of time, which depends on the provider. The collection agency will then issue a report to the credit agencies. This can cause your credit score to drop from 50 to 100 points, per collection.
FICO scores
The newest version of the FICO score, FICO 9, gives less weight to medical debt than previous versions. However, the most widely used FICO model is still FICO 8, which takes into account any medical debt over $100.
Another common model, the Vantage Score 4.0, separates medical collections from other types of collection accounts, and penalizes medical collections less than it does non-medical collections. It will also not take in to account collections less than six months old. Regardless, medical debt will still have a notable negative impact on your credit. Payment history is the most important aspect of your credit report, and being late on medical bills will affect this area of your credit score no matter the scoring agency.
Check the accuracy of your bill
Medical billing mistakes happen more often than you’d think. One medical biller may interpret medical services differently than another and put together a different bill; and some doctors’ offices will charge on the higher end of what is reasonable. Always ask for an Explanation of Benefits (EOB), and go over the bill and the services you received with your insurance company.
Medical debt can come at a bad time
Medical debt can be devastating because it sometimes happens at the same time as other losses of income. A sick or injured person is often unable to work. Most Americans don’t have the savings to sustain such major losses of income past several months, and will suffer a hit on their credit score when medical bills go unpaid. Medical debt can cause problems for years.
Be prepared
To avoid hits to your credit score due to medical debt, you need to make sure your insurance plans and savings are in order. To learn more about how to protect your credit score with the best insurance, speak with the experts at John B. Wright Insurance.
Leave a Reply