Medical debt default can significantly impact an individual’s credit score. Here are some points to consider regarding the impact of medical debt default on the patient’s credit scores:
- Reporting to Credit Bureaus: When a medical debt goes unpaid for an extended period, the healthcare provider may send the account to a collection agency. The collection agency may then report the debt to the credit bureaus. Once it is reported, it is listed on your credit report as a collection account for up to 7 years.
- Drop in Credit Score: Having a collection account on your credit report, especially for an unpaid debt, is considered a negative mark and can cause your credit score to drop significantly. The exact impact varies depending on various factors, including the credit scoring model being used, the individual’s existing credit history, and the amount of the debt.
- Duration of Impact: A collection account due to medical debt default can remain on your credit report for up to seven years from the date of the original delinquency. This means that even if you pay off the debt, the negative mark can still remain on your report and potentially affect your credit score for several years.
- Newer Scoring Models: Some newer credit scoring models, like FICO Score 9 and VantageScore 4.0, treat medical collection accounts differently than non-medical ones. They often weigh medical collections less heavily than non-medical collections, acknowledging that medical debt can sometimes be incurred through no fault of the consumer.
- Credit Utilization Not Affected: Medical debts do not affect your credit utilization ratio since they are not tied to revolving credit accounts like credit cards. Credit utilization is a significant factor in credit scores, but medical debt impacts scores through its presence as a collection account.
- Negotiating with the Collection Agency: Sometimes, you may be able to negotiate with the collection agency to have the account removed from your credit report once it’s paid. This is known as “pay for delete”. However, not all collection agencies will agree to this.
- 180-Day Waiting Period: As per the changes made by the three major credit bureaus (Experian, TransUnion, and Equifax) some time ago, medical debts won’t be reported until after a 180-day waiting period to give individuals enough time to resolve the debts with insurance and healthcare providers.
If you encounter medical debt issues, it’s important to communicate openly with your healthcare provider and insurance company, and if necessary, seek advice from a consumer credit counselor or attorney.