Does Medical Debt Affect Credit Score
Medical debt can affect credit scores if a collection agency reports it to the national credit reporting companies. However, the three national credit reporting companies have changed their policies: paid medical collections and unpaid medical collections under $500 are no longer included, and unpaid medical collections have a one-year waiting period before they appear.
Medical providers generally do not report unpaid bills directly to the national credit reporting companies. Instead, if a medical bill remains unpaid, the provider may transfer the account to a collection agency. That collection agency may then furnish information about the debt to one or more of the national credit reporting companies. The Fair Credit Reporting Act (FCRA) sets the rules for what consumer reporting companies may include in a credit file and how consumers can dispute inaccurate information. Under the FCRA, collection accounts, including medical collections, can appear on a credit report if they meet certain conditions.
The three national credit reporting companies — Equifax, Experian, and TransUnion — have each announced changes to how they treat medical collection accounts. Under current policies, medical collection accounts that have been paid are not included in credit reports. Unpaid medical collection accounts with an original balance below $500 are also excluded. For unpaid medical collections above that threshold, there is a one-year waiting period from the date the account is placed for collection before the account can be reported. In addition, some credit scoring models, such as certain versions of VantageScore, do not consider medical collection accounts at all when calculating a score.
When a medical collection account does appear on a credit report, it can affect credit scores because collection accounts are generally considered negative information by most scoring models. The size of the impact depends on the specific scoring model, the age of the collection, and the other information in the credit file. Medical debt can also be reported in error, for example if a bill was paid by insurance or if the account belongs to someone else. Under the FCRA, consumers have the right to dispute inaccurate or incomplete information with the credit reporting company and the furnisher of the information.
The Consumer Financial Protection Bureau (CFPB) has stated that medical debt is not a reliable indicator of a person's creditworthiness. The CFPB has highlighted that many consumers face medical bills they cannot pay, and it has taken action against illegal medical debt collection and reporting practices. Separately, the No Surprises Act provides protections against certain surprise medical bills. Consumers can obtain free credit reports from the three national credit reporting companies through AnnualCreditReport.com and can review those reports for any medical collection accounts that may be listed.