Medical bills and your credit report

Good news for those with medical debt. If you haven't heard, under the FICO Score 9 paid off medical bills no longer affect your credit score. In addition, medical bills paid by insurance won’t show up on credit reports either. The credit reporting agencies (Transunion, Experian, and Equifax) will wait 180 days before adding medical debt to credit reports. This will allow consumers time to pay their medical bill; not to mention the debt will be removed if/when it's paid by the insurance company.

Credit Score

There are also significant changes in how medical debt is factored into credit score calculations. By paying a medical bill in full, it won’t be included on the credit report. And if the medical bill goes to collections, the credit score formula disregards any collection matters that the consumer has paid in full.

Straight From The Source

According to FICO, “FICO® Score 9 disregards all paid collection accounts… Any missed payments associated with the original credit account before it was sent to the collection agency will still be considered by FICO® Score 9. It is only the third-party collection account that is ignored, if and when that collection account is paid.”

What does that mean? If your medical bill goes to collections, as long as you make on-time payments to the collection agency, any record of that medical collection debt should be removed completely.

Medical Collection Debt Vs. Non-medical Collection Debt

Unpaid medical debt and unpaid non-medical debt are now treated differently under FICO Score 9. Therefore, unpaid medical debt should have less of an impact on your overall credit. Note: FICO states that it will be less of an impact and not having anything in collections is better for your score.

Dealing With Medical Debt

If you can't afford your medical bill after the 6-month waiting period, you can try to negotiate a more affordable payment or a settlement with the creditor/collection agency. Be sure to get any agreements in writing and don't agree to anything you can't afford. According to FICO, whether that debt is settled or paid in full won't matter. On the other hand, settled non-medical debt remains on your credit report as a settled debt, not paid in full. For more detail about collection and medical debt, read "A Breakdown of the Collection Debt Process" and "Dealing With Medical Debt."

Not sure what's on your credit report, pull it for free from all 3 credit bureaus from AnnualCreditReport.com.

LSS Financial Counseling empowers people every day to pay off their debt and achieve their financial goals.