- Medical debt can affect your credit score, but not as much as you might think.
- Unpaid medical debt won't show up on your credit reports until after a year, and medical debt under $500 won't show up at all.
- While FICO has deprioritized medical debt in credit score calculations, VantageScore removed medical debt from its calculations.
Medical debt is any money owed due to healthcare-related expenses, including a doctor's appointment, prescriptions, lab tests, or surgery. Medical bills can be a significant burden and many people worry about the impact that medical debt can have on their credit scores.
This is a reasonable concern. Medical debt is rampant across the United States. As of April 2024, the Consumer Financial Protection Bureau (CFPB) found that 15 million Americans have medical debt on their credit reports, meaning that many Americans are dealing with medical debt in a significant way.
The CFPB announced rulemaking to address the reporting of medical bills on credit reports that would require the credit bureaus to stop reporting medical bills entirely. Although they are now less impactful, understand that unpaid medical bills can still impact your credit score.
While medical debt can deeply impact your financial stability, it can also affect your credit score.
How medical bills can affect your credit
In the past, credit bureaus would report medical debt the same as any other overdue bills, and could cause your credit score to drop. Now, medical debt doesn't have quite the impact that it used to so your credit score doesn't suffer due to medical issues.
Recent changes in credit reporting
As of April 2023, the three credit bureaus — Equifax, TransUnion, and Experian — no longer report unpaid medical debt under $500, and removed any existing medical debt under $500 from your credit report. They also removed medical debt under a year old and will only start reporting it over $500 after it is over a year old. Paid medical collections have been completely removed from credit reports.
Furthermore, credit scoring algorithms have changed how medical debt factors into their credit score calculations. FICO weighs medical collections less than non-medical collections when calculating FICO 9 scores. VantageScore disregards medical debt entirely on both VantageScore 3.0 and 4.0.
Longer grace period
Unpaid medical bills now have a one-year grace period before being reported, giving you more time to resolve the debt either by paying it off yourself or through your insurance.
However, the Biden administration is pushing for new federal rules that would completely remove medical debt from your credit reports. This would prevent collection agencies from using your credit score as leverage in their collection attempts. The CFPB is developing the new rules, which are expected to be completed next year.
Protecting your credit from medical bills
While unpaid medical debt doesn't have the same impact on your credit score as an unpaid credit card bill, it can impact your credit nonetheless. And while your credit score may not suffer as heavily, lenders can still see your outstanding debts on your credit report.
Seek financial assistance
While dealing with medical debt, it's important to remember the resources you can look into. Debt settlement companies and nonprofit credit counselors can help you manage your debt and sometimes even reduce the amount you'll pay. That said, credit-related companies are strictly regulated, as fraud in the industry is common.
"One big no-no is when for-profit credit repair organizations — which are very different from the nonprofits in terms of their approach to credit education — charge advance fees before helping consumers improve their credit scores," says Tiffany Cross, executive vice president of national sales at CredEvolv. Cross recommends reaching out to government-approved nonprofits for advice on the best path for reducing medical debt and scrubbing it from your credit report.
Note that even when working with a reputable company, debt settlements will lower your credit score.
Negotiate with your providers
Communicating with your provider may also reduce medical debt's impact on your credit score. "If you can't afford to pay your medical debt all at once, communicate with your provider," says Rick Eicheldinger, a certified financial planner and the director of financial planning at Facet. "They may allow you to 'settle' the debt for less, set up a payment plan, or refer you to organizations that can provide financial assistance."
Cross recommends approaching your provider sooner rather than later, before a bill becomes overdue.
You'll also want to avoid putting medical debt on your credit card, especially if you don't have the money to pay it off. Once you transfer that debt to your credit card, those protections you and your credit score have against medical debt no longer apply. You'll be responsible for that credit card debt, and your credit score will suffer if you can't pay it.
Consider medical credit cards or loans
Instead of a traditional credit card, consider a medical credit card or loan. There are many companies that finance medical debt and you might actually get a lower interest rate than you would with a traditional credit card.
Monitor your credit reports
All of those new policies discussed above sound great, but there's no guarantee they've been accurately applied to your credit report. "Consumers should always be aware of what is on their credit report, so signing up for a credit monitoring service is a great start to being proactive with credit," says Cross. The CFPB recommends checking your credit report for any inaccuracies, such as an overdue bill below $500. You can pay for credit monitoring, but some of the best credit monitoring services are free.
Because paid medical debt in collections doesn't appear on your credit report, your credit score should return to normal once you pay off that debt. However, Cross says, "Every person's credit profile is like a snowflake or a fingerprint — no two are alike. And therefore, each person's path to improving their score will literally be different from the next."
Medical debt is an all-too-common occurrence in the U.S., with many structural issues at play. Take the time to sort out how different regulations might apply to you and how to reduce medical debt's impact on your credit score.
Frequently asked questions about medical debt
Yes, you can remove medical collections from your credit report if they are paid, the total is under $500, or if the collection is inaccurate.
If there is a medical collection on your credit report that you do not recognize, dispute it immediately with all three credit bureaus.
Medical debt in collections will lower your FICO scores, but it will have no impact on your VantageScore scores. That said, outstanding medical debt on your credit report can still impact a lender's decision.
