How Medical Debt Affects Your Credit Score

Medical care is essential for maintaining good health, but the costs can sometimes lead to financial stress. Understanding how medical debt impacts your credit score is crucial for managing your finances effectively.

Do Medical Bills Hurt Your Credit?

Medical bills themselves do not affect your credit score as long as they are paid on time. However, if they remain unpaid, they can be sold to a collection agency, which can then report the debt to credit bureaus. This can negatively impact your credit score.

Changes in Reporting Medical Debt

Starting March 31, 2023, credit reporting agencies no longer include medical collections under $500 on your credit report. This means smaller medical debts won't hurt your credit score. Additionally, paid medical collections do not appear on your credit reports at all, but larger unpaid medical collection balances can still cause a decrease in your credit score.

This change is part of an effort to reduce the financial burden on consumers and to ensure that minor medical debts do not disproportionately affect credit scores.

Grace Period for Medical Debt

Credit bureaus provide a 365-day waiting period before unpaid medical debt appears on your credit report. This grace period allows you time to resolve any billing issues, get insurance payments processed, or set up a payment plan. During this time, you can work with your healthcare provider or insurance company to address any discrepancies or delays in payment. This grace period is designed to give consumers a fair chance to manage their medical expenses without immediate repercussions on their credit scores. This grace period gives consumers the breathing room they need to sort out a billing error that could have otherwise damaged their credit, for example.

Long-Term Impact of Unpaid Medical Debt

Unpaid medical debt can stay on your credit report for up to seven years from the original delinquency date. This can significantly impact your credit score, as payment history is a major factor in credit scoring models. A lower credit score can affect your ability to obtain loans, credit cards, and even housing. It's essential to address unpaid medical debt promptly to avoid long-term negative effects on your financial health.

The Scope of Medical Debt in the U.S.

Medical debt is a significant issue in the United States. According to a recent analysis, approximately 20 million people (nearly 1 in 12 adults) owe medical debt. Of these, about 14 million people (6% of adults) owe over $1,000, and around 3 million people (1% of adults) owe more than $10,000.

Despite over 90% of the U.S. population having some form of health insurance, medical debt remains a persistent problem. This debt can lead to severe financial strain, with many people cutting spending on essentials like food and clothing or borrowing money to pay medical bills.

Tips for Managing Medical Debt

Review Your Bills. Always check your medical bills for errors and ensure that your insurance has been correctly applied. Mistakes can happen, and it's important to verify that you are only being charged for the services you received.

Communicate with Providers. If you're unable to pay a bill, contact your healthcare provider to discuss payment plans or financial assistance options. Many providers offer flexible payment plans or financial aid for those who qualify.

Monitor Your Credit Report. Regularly check your credit report to ensure that any medical debt is accurately reported and to catch any discrepancies early. You are entitled to a free credit report from each of the three major credit bureaus once a year, which you can use to stay informed about your credit status.

If you’re a PSECU member with a checking account or loan, we offer qualifying members a free credit score service*. This free membership benefit reports monthly credit scores, helping members keep a pulse on their credit.

Seek Professional Advice. If you're overwhelmed by medical debt, consider speaking with a financial advisor or certified credit counselor. They can provide guidance on managing your debt and improving your credit score. These professionals can help you create a realistic repayment plan.

By staying informed and proactive, you can manage your medical debt effectively and minimize its impact on your credit score. Remember, taking control of your medical debt is a crucial step toward maintaining your overall financial health.

For more resources aimed at helping you achieve your financial goals, visit our blog.

*PSECU is not a credit reporting agency. Members must have PSECU checking or a PSECU loan to be eligible for this service. Joint owners are not eligible.

FICO^® is a registered trademark of Fair Isaac Corporation in the United States and other countries.