Here, we’re specifically looking at unpaid medical bills and how they affect your creditworthiness.
Our creditworthiness is an important number that will affect your ability to qualify for a loan and the terms and conditions offered to you, if approved. Most American consumers are familiar with the fundamentals of solvency testing. For example, late payment of bills is seen as a negative, while deleveraging is seen as a cheap measure.
There are many other variables that are taken into account when calculating a credit score. Understanding how different situations will affect your score is important to making the best decisions to improve your score.
The reason I was curious about this was based on a recent panel I attended. On the podium were three lenders – one from a local bank, one from a credit union, and one specializing in SBA loans. You might be wondering why the hell I was sitting on the dashboard? Trust me, that’s exactly what I was asking myself.
Part of the discussion was about creditworthiness, and the local lender made a comment like: When it comes to unpaid medical bills, they have the most direct impact on your creditworthiness. A $50 unpaid medical bill can sometimes reduce your score by 100 points. When I first made this comment, I was a little surprised. Do unpaid medical bills really hurt your credit score so much?
Are medical bills like other bills?
There are different perspectives from which debt is viewed in relation to your creditworthiness. For example, simply having debt cannot be considered negative if you pay on time every month. On the other hand, unpaid debts – such as unpaid medical bills – have a greater impact on your credit score when the score on those debts is reported to the credit bureaus as a collection account.
Looking at the bigger picture, high credit scores are considered negative, but when compared to unpaid debt that ends in collections, high credit scores are the lesser of two evils.
Flexible payment
Unpaid medical bills offer a level of flexibility not often found in credit card bills or other financial obligations. In many cases, hospitals and other healthcare providers will be willing to work out a payment arrangement that prevents the unpaid bill from being reported late or late. This can be a real benefit for someone who can’t pay the bill in full, but can pay off the debt over time. Failing to report the medical bill as unpaid or billed may not affect your creditworthiness.
Therefore, anyone with an open medical account should contact their physician to discuss available payment options. This way, you can prevent your credit score from being negatively affected while paying your unpaid bills.
Liz Weston, writer and financial expert, was asked by someone what he could do to improve his credit score. This person had multiple arrears on his credit report for unpaid medical bills and tried to raise his current score to 650.
You can help prevent further damage to your score by closely monitoring your doctor’s results on the bills. The objective is to prevent them from being charged or reported to credit agencies. This could mean calling your doctor and insurance company monthly to check on the progress of any revisions that are delaying payment; in some cases, you may need to pay bills and claim reimbursement from your insurance company. Yes, it’s a chore, but better than another hit on your score.
Liz is right, it’s a chore, but it’s definitely worth it. My wife is the queen of the organization and she keeps track of our medical bills at all times. Several times she had to challenge the insurer about our payments when they threatened to turn it over to a debt collection agency. She’s on top of that, and with a credit rating in the 790s, it’s proof that keeping track of your medical bills pays off.
Medical bills enter new scoring system
FICO has a new score calculation method (FICO version 9 and VantageScore 3.0). They are a little different from older models. You will still be looking at the same factors, but each has a different weight. Medical bills aren’t a big issue with the new models. Having an unpaid medical bill won’t ruin your credit like the old model. What does this mean to you? When you apply for a car loan or try to buy a house, the old hospital fees won’t stop you from getting the loan.
Conclusion
Determining how an unpaid medical bill will affect your credit score is not a perfect science. Each person has their own credit history, which is included in the formula used to determine their score. If you have a history of paying bills on time and using credit responsibly, this may not affect your score as it could be harmful.
However, if you have a history of late payments, late bills, or collection activities, an unpaid medical bill can have a significant impact on your credit score. Years on your credit report. By understanding how different debts can affect your creditworthiness, you can make informed decisions about your personal finances and how you will manage your credit and debt in the future.
