Can Medical Debt Affect Your Credit?

Generally speaking, doctors and health care facilities don’t directly report bill payment history to the three major credit bureaus. Instead, if you or your insurer doesn’t pay the bill, the health care provider may turn your bill over to a debt collection agency. This action can take anywhere from 60 to 120 days after the billing date.³

Paying your bill as soon as possible, or working out a payment plan with the health care provider, is the best way to make sure medical debt doesn’t end up at a collection agency. But even if a medical bill is sent to collections, you’ll have additional time to pay it off before your medical debt will negatively affect your credit score.                  

Normally, if you have any unpaid debt that is turned over to a collection agency, it counts as an adverse item on your credit report that can, in turn, hurt your credit score. 

But the three major credit bureaus – Equifax, Experian, and TransUnion – treat medical debt differently from typical consumer debt.³ Previously, the three bureaus agreed that unpaid medical bills that have been sold to a debt collection agency would not be included in your credit report for 180 days. But in 2022, that grace period was extended to one full year.²

That gives individuals more time to navigate the world of insurance billing – and more time to pay off the balance. Bills paid within the grace period window will not impact your credit report or your credit score.

In April 2023, the three credit bureaus rolled out a new reporting system that no longer included unpaid medical debt below $500.⁴                   

Under the new rules that went into effect in 2022, unpaid medical debt that has been turned over to a collection agency will show up as a line item in your credit report after one year, assuming it is for more than $500. The impact on your credit score depends on the credit scoring model used.^2,4

As of 2022, FICO Score 8 is the most widely used scoring model.⁵ And the higher your credit score, the bigger the potential ding.

The good news is, the newer FICO Scores 9 and 10 assess medical debt differently from an ordinary collections account. Specifically, they treat medical debt in collections less harshly than other types of debt that are sent to a collection agency.⁶

The best way to avoid any negative credit impact is to keep your medical bills from being handed over to a collection agency. The following tips might help:

Make sure you’re not charged for unavoidable out-of-network care. If you have health insurance, choosing doctors and facilities in your network might  save you money. Though individuals don’t always have a choice of facility or provider, a new federal law aims to offer financial relief from any “surprise” medical bills associated with unwittingly receiving care from an out-of-network doctor or facility. The law went into effect in January 2022.⁷

Specifically, the new law prohibits you from being billed extra in situations in which you’re unable to choose your provider, such as receiving emergency care at a facility that is out of network or being treated by a health care provider not in your plan’s network.

You’re also protected if you get care from a doctor or hospital that is in your health insurance plan’s network, but somewhere along the line an out-of-network doctor provides care. For instance, an anesthesiologist or radiologist you have no role in choosing may be out of network.

Build up savings to cover medical bills. Every health insurance plan has a maximum out-of-pocket (OOP) cost you may  be liable for in a calendar year. Find out your plan’s OOP max, and then make it a goal to try to tuck away at least twice that much in an emergency savings account. Why twice the amount? In case of ongoing illness or injury. For example, if you receive a diagnosis in September that you’ll still be treating come January, you’ll have two OOP costs to fill within four months.

Be proactive if you can’t pay the bill in full. Don’t take a head-in-the-sand approach if you can’t cover the bill with one quick payment. It’s important to ask your health care provider if it will agree to a payment plan arrangement. This way, you can pay the bill over a few months, instead of in a lump sum.

Consider saving in a Health Savings Account. If you have a high-deductible health plan (HDHP), you may be eligible to set aside money in a Health Savings Account (HSA). What’s more, some employers offer a matching contribution for money set aside in an HSA, making it a good way to build up savings to cover out-of-pocket medical costs. That said, it makes sense to consider opening an HSA only if you already have enough set aside in savings to cover the higher deductible you must pay before coverage kicks in – the average annual deductible for an HSA-qualified, single-coverage HDHP is nearly $2,500, and $4,500 for family coverage.⁸