Medical debt hurts. You thought your insurance would cover some necessary medication or procedure, but the company left you footing the bill. Worse yet, an unpaid medical bill will hurt your credit while a paid bill remains off the record. But you can take back control of your credit report. We explain how medical debt affects your credit report, how to get it off, and how to keep it off in the future.
Medical Debt: Negative Information Only
A staggering number of Americans have medical debt on their credit report. Over 43 Million, or one out of five credit reports contains an instance of medical debt. According to the CFPB, 52% of all overdue debt on credit reports is medical debt.
If these statistics don’t impress you, the unfairness of medical debt might. Medical debt is not like other kinds of debt. It only shows up on your credit report if you haven’t paid it. It’s a form of “negative” information. This means that paying your medical bills won’t help you build credit.
On the other hand, not paying will hurt your credit. An unpaid medical bill appears as a negative collections item.
What’s worse? Medical providers don’t have to inform you before they turn a bill over to a collections agent. They may even turn over the bill if you’ve made timely payments on a financial help plan.
Newer credit scoring algorithms like the FICO 9 or the Vantage 3.0 ignore medical debt. This would be great news for consumers, but most lenders still use the FICO 8 credit score. That means that unpaid medical bills still count against you.
The whole system seems unfair. The CFPB reports that many consumers don’t know about their medical debt until it shows up on their credit report. Even worse, many people find out when a collections agent calls them.
Thankfully, medical debt is easier to remove from your credit report than other types of debt.
Negotiate bills with the right collector
In general, we recommend working with your collections agent to remove negative information. Often this means pursuing some form of “Pay for delete” strategy. The key here is negotiating to drop the negative information from your report. Marking medical debt as paid doesn’t improve your credit score. Your creditor needs to remove it.
The pay for delete strategy works with medical debt. However, medical debt has a unique wrinkle. Unlike other debts, you can still work with your medical provider.
Is it better to work with your provider? It depends upon the situation.
If you were on a payment plan, but your bill ended up in collector’s hands, call your provider. If you work with them right away, they should honor their assistance plan.
Patients who never received a bill should also work with their provider. Explain the situation, and ask your provider to pull the bill from collections.
When your provider pulls a bill from collections, you get a “reset” on your debt. The reset gives you time to negotiate a payment plan with your provider. Most of the time, providers will give discounts for prompt payment or for starting a payment plan.
If the negative information doesn’t come off your credit report, you can dispute the debt through the credit bureaus.
When providers won’t work with you, work with the collections agent instead. Ask them not to report the medical debt right away. They may keep the debt off your credit report if you agree to a payment schedule. If they agree, your credit report will remain clean.
Stay on top of your medical bills
You don’t want medical debt to hurt your credit again. To keep it far from your credit report, you need a plan to manage medical expenses. These are a few steps you can take to keep medical debt from your report.
Start by reading all the communication from your medical provider and your insurance. Most of the time, the first communication you get will be from your insurer. It will be an Explanation of Benefits (EOB). It will have the words, “This is not a bill” on the top. This document explains what a hospital charges, and what the insurance company agrees to pay. The difference between the two is the discount. You don’t owe the discount. That is an agreement between the hospital and the insurance company.
You will owe some part of the amount agreed to by the insurance company. You may only owe a copay, or you may owe the full amount up to your deductible. Your responsibility depends on your agreement between you and your insurer.
If you don’t get an explanation of benefits within 6 weeks of treatment, call your medical provider.
Shortly after you get the EOB, you will get a bill from your medical provider. If the bill is more than you expected, you can call the provider and ask for an itemized bill. This gives you the opportunity to identify errors and avoid overpaying.
You can also negotiate discounts by starting a payment plan or by making a lump payment right away.
Stay on top of all communication, and you’re more likely to keep medical debt off your credit report.