Article Updated June 21, 2018 by Elisa Ortiz
If you think you’re immune to damage from a collection account on your credit report because you pay your bills on time, think again. Medical bills that you don’t know about could be hurting your credit, and the odds are not in your favor.
If you want to keep your credit rating strong, you might want to stay away from a hospital or other medical facility. New research shows that many Americans are foregoing necessary medical care in order to prevent going into debt over medical treatment. Even if you have good insurance or can pay for any illnesses or emergencies that arise, you could wind up with a collection account on your credit reports, and your credit scores could tank as a result.
One in three Americans has a collection on their credit reports. And previous research from the Federal Reserve found that over half of all collection accounts on credit reports are related to medical bills.
Here are four common misconceptions about medical bills that can cost you dearly:
Myth 1: My Insurance was supposed to cover everything so I’m not responsible
The Truth: It is a consumer’s responsibility to know what they are responsible for paying. A lot of people are under the impression that their insurance was supposed to cover all costs, so they shouldn’t owe. Due to how a visit or procedure is billed with the insurance, this isn’t always the case. It’s always best to be prepared for the worst in this case to prevent anything from being sent to collections.
Insurance companies will usually send out an Explanation of Benefits (EOB) before you receive a bill from the provider. Be sure to go through these important documents with a fine-tooth comb to make sure you understand what your estimated out of pocket costs are going to be. If you have questions about why something wasn’t covered, be sure to reach out to the provider and your insurance company.
Myth 2: As long as I am making payments on a medical bill, it can’t be sent to collections.
The Truth: Making payments on a medical bill doesn’t necessarily keep it out of collections. If you’re making small payments, or if you make your payment a few days late when you are under a payment arrangement, you may discover the provider has turned the bill over to collections.
Protections under the Affordable Care Act give patients at non-profit hospitals time to apply for financial assistance before any “extraordinary collection measures” are taken. But for the most part, any unpaid balance is fair game.
In order to prevent medical bills from going to collections while you’re making payments, set up a payment arrangement with the provider, and get it in writing. If you make an arrangement to pay off a debt in six months for example, and the provider agrees to it, then they shouldn’t send you into collections as long as the payments are for the agreed upon amount as determined by you and the provider, and the payments are made on time.
Myth 3: Medical collection accounts are treated differently than other types of collection accounts.
The Truth: Medical providers, such as doctors and hospitals, don’t typically report medical bills. In fact, these bills generally don’t show up on credit reports unless they are sent to collection agencies, which often do report them. And at that point, there is no distinction between medical collections and other collection accounts.
Newer scoring models such as the FICO 9 formula treat paid medical collections differently from unpaid collections – they don’t impact a score as much. However, this is the newest version of the FICO scoring model – the score that most creditors use when determining creditworthiness – and many creditors will use older models, meaning that medical collections, even paid ones, will still be treated the same.
Myth 4: To clean up my credit, I need to pay off medical collection accounts.
The Truth: Go ahead and pay those medical collection accounts if you owe them, but don’t expect dramatic changes to your credit scores. The fact is, collection accounts hurt your credit scores and that’s generally true whether they are paid or unpaid, though as mentioned above, some models may favor collection accounts that have been satisfied.
Eventually all collections are removed from credit reports. Under federal law, they may not be reported seven years and 180 days from the date the consumer first fell behind on the original bill, regardless of whether the account has been paid or settled.
Is there any benefit to paying off a medical collection account, then? Potentially, yes. You may avoid a potential lawsuit over the debt. If you lose a lawsuit, the creditor will get a judgment against you, and that judgment will add a new negative item on your credit reports.
If you are planning to pay off these types of accounts though, you can see if a collection agency will agree to do a payment for deletion. Once you finish paying off an account, a creditor can agree to remove the derogatory information from your credit reports. Remember though that they don’t have to agree to this, but if they do, make sure to get something in writing confirming the account will be deleted before you make the payments.
What Else Can I Do?
In 2016, Congress passed the Medical Debt Relief Act, introduced by Senator Jeff Merkley (D-OR), which is an amendment to the Fair Credit Reporting Act (FCRA) and Fair Debt Collections Practices Act (FDCPA). If an unpaid medical bill goes into collections, the collection agency must notify the consumer that the account was placed in collections. The consumer then has 180 days from the notification to pay the account before the agency is allowed to report it to the credit bureaus. Additionally, once a medical collection has been paid, the medical debt must be removed from the consumer’s credit report within 45 days.
Anytime you are contacted by a collection agency, you have the right to written confirmation of the debt, as well as the right to dispute it. That’s your right under the federal Fair Debt Collection Practices Act. If you know your rights, you’re in a better position to stand up for them. Under the federal Fair Credit Reporting Act, you also have the right to dispute inaccurate information on your credit reports. But you have to know how to properly dispute an item on your credit report to get results.
Help for Hospital Bills
Hospital bills totaling thousands of dollars aren’t unusual. If you get a very large bill you can’t afford to pay, you first want to find out whether you are eligible for financial assistance. New rules in the Affordable Care Act offer some protection for patients at nonprofit hospitals, such as informing them in writing of options for financial aid.
If you’re concerned about how your medical debt could be impacting your credit, you can check your three credit reports for free once a year. If you’d like to monitor your credit more regularly, Credit.com’s free Credit Report Card provides you with an easy to understand breakdown of the information in your credit report using letter grades, along with two free credit scores that are updated every 14 days.
[Offer: If you are worried about medical errors on your credit reports, the credit repair professionals at our partner Lexington Law may be able to help. They have a team of attorneys who can help you improve your credit by getting inaccurate, negative items removed. Their team can also help you understand your credit score and leverage your rights to help ensure that you have a fair, accurate and substantiated credit report. Get started today or call them at 833-333-2281 for a free consultation.]
More on Managing Debt:
- How to Pay Off Credit Card Debt
- Understanding Your Debt Collection Rights
- Top 10 Debt Collection Rights