People applying for a loan, renting an apartment or even applying for a job may be adversely affected by a poor credit score. Your credit score is a critical factor used to determine whether you will be approved for a loan and at what interest rate. In some cases, a poor credit score can even disqualify you from a job or certain security clearance.
As a personal injury lawyer in Philadelphia, I regularly represent cleints who were seriously injured because of the negligent behavior of another person or business. Regardless of whether they were hurt in a motor vehicle accident, a slip and fall incident or through medical malpractice, a shared problem clients face is staggering medical bills. Sometimes, an accident victim’s medical bills are not paid by insurance companies on time. It can take months for insurers to process payments, and in some instances, insurer companies will try to stall or fight payment of legitmate claims. In other cases, people without health insurance are simply incable of paying for medical treatment.
Absent insurance, accident victims often depend on a settlement or personal injury award to pay outstanding medical bills. However, personal injury cases are very involved and may take months or years to resolve depending on the circumstances.
A common question clients ask is “Will unpaid medical bills hurt my credit score?”
Unfortunately, the answer is yes. If an unpaid medical bill is sent to a credit reporting agency it can severely impact your credit score. In practice, I try to prevent a client’s medical bills from making it to credit reporting agencies by communicating with treatment providers about the status of their case. However, not all medical providers are willing to wait for a settlement or award before sending a bill to collections.
Fortunately, some recent changes in credit reporting practices have made it harder for medical bill collectors to destroy your good credit.
In August 2014, Fair Isaac, the issuer of FICO credit scores, announced that it would reduce the impact of unpaid medical bills. In some cases, this has meant about a 25% increase in a persons credit score who had otherwise good credit.
More recently, in March 2015, Equifax, Experian and Transunion, the major credit reporting agencies, announced changes in the way they report medical debt. The changes were announced in a Consumer Data Industry Association report which stated
“Medical debts won’t be reported until after a 180-day “waiting period” to allow insurance payments to be applied. The CRAs will also remove from credit reports previously reported medical collections that have been or are being paid by insurance.”
In addition, reporting agencies have responded to consumer complaints about medical billing errors by agreeing to remove medical debts from a person’s credit report after the debt is paid by insurance.
These changes, as well as some other consumer friendly measures, were brought about by the Attorney General of New York. However, they are planned to be implemented nationwide within 6 months of the announcement.
Although these medical debt reporting changes are a step in the right direction, further action is still needed. It is estimated that approximately 40 percent of Americans have medical debt. Surprisingly, many of these people have health insurance and simply can’t pay co-pays, deductibles and premiums! There is no dispute that consequences of medical debt can cripple people and families. Moreover, unlike credit cards or other loans, medical bills are not a result of living beyond your means. Medical debt is usually not built up slowly. Instead, insurmountable charges are quickly levied and destroy credit scores, financial freedom and future goals and dreams.
If the issue of medical debt reporting is important to you, or affecting your credit, I encourage you to contact your US Senator or House Representative in Congress and request they pass legislation that all medical debts be excluded from consumer credit reports and that paid medical debt be removed from consumer credit reports immediately!