Published On: 3.6.2012 Charlotte, NC

How Medical Bills Can Wreck Your Credit Score

On behalf of Charles G. Monnett III & Associates


There has been a growing problem in Charlotte, NC and throughout the rest of the country with unpaid medical bills dragging down credit scores. It seems like an easy enough problem to fix, just pay your bills, but there are actually many factors that influence this unfortunate situation.

The Commonwealth Fund, a private foundation that sponsors health care research, estimates that 22 million Americans were contacted by collection agencies for unpaid medical bills in 2005. That number increased to 30 million Americans in 2010. With these staggering numbers, it should be no surprise that medical bills make up the majority of collection actions on credit reports. However, the surprising part is that most are for less than $250, according to Federal Reserve Board research.

What most people do not realize is that just one unpaid medical bill sent to collections can cause their credit score to drop up to 100 points. Even if this bill is paid off, the record of the collection action can stay on a credit report for up to seven years, dragging down credit scores. An estimated 3.4 million Americans have paid-off medical debt lingering on their credit reports, according to the Access Project, a research group funded by health care foundations and advocates of tougher laws on medical debt collectors.

It seems the health care industry is notorious for sending past due accounts to a third-party debt collector after a very limited number of attempts to notify the client. They do this quicker than any other industry. Hospitals began this practice when the numbers of uninsured started to grow significantly and the hospital’s financial staff were getting overloaded with delinquent bills. Instead of hiring more staff it was easier and more affordable for these healthcare facilities to send the bills to collection agencies.

While this policy may be more effective for the health care facility, it is causing a serious burden on consumers. Outright billing mistakes, confusion over whether a claim will be paid by insurance and disputes between insurance companies and doctors can all can lead to medical bills being sent to collection agencies. This can be particularly troublesome for those involved in traumatic accidents. Struggling to recovery from a serious accident, working, and trying to pay growing hospitals bills before they are sent to collections can be next to impossible.

Fortunately, this growing problem has been getting some attention from Congress. A new piece of legislation has been proposed, the Medical Debt Responsibility Act, that would require credit agencies to delete paid-off medical debt from credit reports within 45 days. The bill currently has bipartisan support in the House and even has the support of debt collectors. The only possible foe is the Consumer Data Industry Association, which hasn’t taken a position yet. In the past, this group has argued that lenders need to see a consumer’s patterns of behavior over time and even paid-off medical debt is relevant to whether the consumer is a good risk.