Medical debt and your credit score

Medical Debt

Medical debt has always been a huge burden to the American consumer, and for a long time it has been able to substantially weaken your credit score. A 2014 study by the Consumer Financial Protection Bureau found 43 million Americans had medical debt on their credit reports. For 15 million of them, medical debt was their only issue. Unfortunately, it was an issue capable of severely hurting their ability to get a good loan.

After the study, however, CFPB decided it was time for a change. In March 2015, the Chicago Tribune reported a slew of reforms the CFPB decided to implement. One of the most significant changes is how medical debt will be reported to collection agencies and added to a consumer’s credit report. The three major credit bureaus, Equifax, Experian and TransUnion, will now wait 180 days to report debt, which allows time for any insurance payments to go through.

“To call this a big deal is an understatement,” John Ulzheimer, a credit expert at CreditSesame.com, told the Tribune.

The CFPB explained its decision was based on a number of challenges associated with paying off medical debt. The payment process is incredibly confusing and can often involve bills from multiple providers. Beyond that, it is often unclear when it is the consumer’s responsibility to pay something, and as a result many consumers are not even aware they have medical debt when it shows up on their credit reports. The changes are meant to counteract these challenges.

Other changes, according to the Tribune, include eliminating debt from credit reports that a consumer did not previously agree to pay, such as parking tickets, as well as making it easier to dispute any errors by providing consumers with more information about their claims.

The CFPB has taken measures to reduce the affect of medical debt on consumers’ credit scores.

How to make sure medical debt won’t show up on your report
These changes are exciting, but even though they were announced almost a year ago, it may still be a while before they take effect. It can take time to update credit score software systems. Even if/when the change has been implemented, it is still important to make sure your payments are made before that 180-day waiting period is over.

“50 to 80 percent of medical bills contain errors that overcharge customers.”

U.S. News and World Report said a whopping 50 to 80 percent of medical bills contain errors that overcharge customers. So the first thing to do when you receive a medical bill is diligently examine it and dispute anything that looks wrong. The publication also explained that it’s actually possible to negotiate your bills with both your medical and insurance providers – just make sure you don’t waste your time speaking with someone who has no power to reduce the charges.

Even if you cannot afford to make the payments, don’t simply ignore them. Bankrate suggested seeking out financial assistance, as it is quite possible you qualify if you are struggling to pay. Bankrate also recommended avoiding making any medical charges on a credit card because you will then be subject to interest rates. In general, the doctor’s offices and hospitals themselves will not charge interest for a late bill, so keep that charge off your card. It is also possible your medical provider will be willing to establish a payment plan with you.

U.S. News and World Report said even just expressing a willingness to make the payment could go a long way in preventing your debt from being sent to the collection agencies. Hospitals will appreciate you doing all you can to repay your debt.