Medical bills often cause stress, especially when they remain unpaid for an extended time. Many people assume that insurance will cover all medical expenses, but unexpected out-of-pocket costs can arise. These costs, combined with high deductibles or other unforeseen expenses, can lead to large bills that feel overwhelming.
How medical debt affects your credit score
Medical bills alone do not automatically lower your credit score. Problems arise when unpaid bills reach a collection agency. Once in collections, these debts may remain on your credit report for up to seven years, negatively affecting your credit score during that time. Even if you eventually pay off the debt, the history of it going to collections leaves a mark on your credit.
However, credit bureaus handle medical debt differently from other types of debt. For example, credit scoring models like FICO give less weight to medical collections than to other types of collections. Additionally, paid medical debts in collections often get removed from your credit report. Despite this, the presence of any collections can still lower your score.
No Surprises Act
It should be noted that a recent congress ruling, the No Surprises Act, ordered that any medical debt under $500 will not appear on credit history. With this ruling came other benefits as well. Any medical bills completely paid off and any debt that is less than a year old will not appear on your credit report.
Managing medical debt to protect your credit
Proactively managing medical debt, such as setting up payment plans with healthcare providers or negotiating lower payments, is critical. You may need to consider filing for bankruptcy to get your medical debts settled.
By taking steps to address these bills early, you can minimize their impact on your credit and avoid long-term financial challenges.
