A new Consumer Financial Protection Bureau (CFPB) rule intended to block medical debt from being included on credit reports was struck down by a federal judge before it could take effect. With unpaid medical bills now slated to remain on credit reports, Bottom Line Personal asked patient advocate Caitlin Donovan what toll this debt takes on credit scores and what consumers can do about it.
How Medical Debt Affects Credit Scores
Unpaid medical debt on a credit report typically reduces that person’s credit score by around 20 points, according to the CFPB, though this can vary. That score reduction might cause you to pay higher rates on a mortgage or auto loan…or even increase insurance premiums or make it more challenging to find a job since some insurers and employers check credit scores. These higher costs and employment issues can be particularly problematic for people already struggling to pay medical bills.
Medical debt isn’t like other debt—people end up with big medical bills not because they’re irresponsible with money but because they had the bad luck to get sick or injured. A study by the National Bureau of Economic Research concluded that having medical debt isn’t generally predictive of defaulting on other debts.
Good news: Policy changes enacted earlier this decade by the three major credit-reporting agencies—Equifax, Experian and TransUnion—still provide some protection for people saddled with medical debts. Unlike with most forms of debt, medical debts of less than $500 are no longer included on credit reports…medical debts larger than $500 are no longer included on credit reports until the debt is at least one year old so consumers have time to sort out billing disputes…and once a medical debt is paid, it now is promptly removed from credit reports. Also, recent FICO and VantageScore credit-scoring models give less weight to medical debts on credit reports than to credit cards and other types of debt.
What’s more: 15 states have their own laws designed to prevent medical bills from appearing on credit reports or offer similar protections, according to the Consumer Federation of America—California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington. But the same ruling that recently invalidated the CFPB rule also could render these state laws difficult to enforce.
Important: Debt collectors can pursue medical debts even if state laws and/or credit-reporting agency policies prevent those debts from appearing on credit reports.
- Check credit reports regularly.
- For medical debt you cannot afford to pay, ask the hospital or health-care provider about financial assistance.
- If financial assistance is not available, ask about setting up a payment plan.
- If a collection agency contacts you, ask for proof of the bill—that will give you time to look for options.
- If all else fails, negotiate the amount with the collection agency.
What to Do About Medical Debt
Take the following steps to prevent medical debt from impacting your credit score…
Step 1: Check your credit reports regularly for medical debts that shouldn’t be there as well as other errors—you can obtain free copies of your credit reports at AnnualCreditReport.com. If you spot a debt that you believe is inaccurate or improperly included, dispute this listing with the credit-reporting agency.
Step 2: If you have a medical bill that you can’t afford to pay, contact the hospital or health-care provider’s billing office as soon as possible to ask whether it has a financial-assistance program that can help. These programs aren’t necessarily available only to the poor. Example: Patients who have low-six-figure incomes can potentially qualify for financial assistance at Memorial Sloan Kettering Cancer Center in New York.
Step 3: If financial assistance isn’t an option, ask about setting up a payment plan—hospitals and other health-care providers often are willing to work with patients who are unable to immediately pay their medical bills.
Caution: Don’t use a credit card to pay a medical debt unless you’re certain you can pay the credit card bill off in full during that billing period. It’s better to work out a payment plan with a provider or hospital than to incur steep credit card interest rates.
Step 4: If a collection agency contacts you about a medical debt, ask the agency to provide “proof that the amount of this bill is correct and that the bill is truly mine.” By law, saying this forces the collection agency to put the collections process on hold until it supplies the requested information. Use this time to do your own research to confirm that the bill is accurate…and, if it is, to ask the hospital or health-care provider if it would be willing to take the bill back from the collection agency and instead set up a payment plan directly with you.
Step 5: If all else fails, haggle aggressively with the collection agency over the amount. If you’re not confident in your financial negotiation skills, ask a loved one or friend to negotiate on your behalf. Collection agencies buy medical debts for pennies on the dollar, so they often can afford to offer debtors deep discounts. If the collection agency agrees to accept an amount less than the full bill, insist that it provide written confirmation that it’s accepting this amount as payment in full for the medical debt before paying.
