One of the most dangerous types of bills to leave on your credit cards are medical bills; unfortunately, these are also some of the most common, as few people are able to pay the balance of expensive medical procedures out of pocket. Even with comprehensive insurance, you may be unaware of how much medical treatment will actually cost, thanks to complicated insurance policies and ever-changing co-pay fees. When you’re injured, there’s usually not time to think about costs, prices, or to shop around for the lowest costs- you need care urgently, which leaves most people with few options except their local hospital or urgent care center. This can easily translate into an unexpectedly large bill that can hurt your credit score if left unpaid. We consulted some of the experts at Freedom Debt Relief to help understand what makes medical debt unique and what you can do if your medical debt is hurting your credit score.
If you’ve got an unpaid medical debt on your credit card, you’re not alone- a new survey by The New York Times found that amongst those with medical bill debt on a credit card, 31% had accumulated $5,000 in debt that they had trouble paying off, while 13% had amassed over $10,000 worth of outstanding debt. Even relatively small medical expenses have the potential to throw a wrench into a large percentage of America’s finances; according to a report by the Federal Reserve, 46% of Americans would be unable to pay a $400 medical charge out of pocket, and would have to charge it or borrow money to cover the expense. This trend signifies that more and more Americans are relying on credit to pay for their medical bills, which can be a long-term problem in terms of credit score if the borrower is unable to meet the minimum regular payments.
But how do these unpaid bills negatively affect your credit score? If you have an outstanding bill that is associated with your medical debt, it will depend on when your medical provider has reported the debt to a collection agency following a period of payment inactivity. If they have reported your debt to one of the three major credit bureaus, your credit score will likely drop. Not paying your medical debt will count as a strike against your payment history, the most important contributing factor to your credit score; according to Freedom Debt Relief, your payment history composes about 35% of your credit score. This means that if you are consistently missing payments, like those on your medical debt, you will likely face a drop in your credit score, increased rates of interest, and denial of future loans or applications.
Freedom Debt Relief advises anyone with medical debt to formulate a plan to pay their debt off as soon as possible, lest they become trapped in a cycle of missed payments and lowered credit scores.
There is some good news- some credit bureaus are now weighing medical debt less than other types of debt when calculating scores. While previously all debt was treated the same, the FICO 9 and VantageScore 3.0 now place less weight on medical bills than other types of bills in the collection of debt. This means that if your medical debt is the only debt on your account, you will face much less drastic changes in credit scores than previously. Additionally, collections can only stay on your account for up to seven years, meaning that if you can wait seven years, the medical debt will expire and your credit score will begin to improve. However, the downside to these two lights of hope are that most credit bureaus have not yet adopted the FICO 9 or VantageScore 3.0, and many will continue to deny you credit for all seven years. If you want to avoid this serious damage to your credit score, it’s best to consult with financial experts to cultivate a plan to deal with your debt.
Freedom Debt Relief could help you put medical debt behind you. As a top debt resolution company, Freedom Debt Relief has designed their program to significantly reduce the amount of debt you owe, and could help you to become free of credit card debt. If you don’t know how to handle your medical debt, get the help of the largest debt negotiator in the country on your side- and move confidently into your new future.