Medical Bills Don't Have to Ruin a Credit Score
In a recent Federal Reserve study, nearly half of all debts that appeared on the average credit report were related to unpaid medical expenses. However, in some cases, consumers may have been falsely billed. This means that many may be suffering from financial burdens even though they didn't make bad financial decisions.
Nearly 14 million Americans are struggling with bad credit that they believe to be related to erroneous bills, according to the Commonwealth Fund, a health care research group. As large as this number is, the true figures may be much higher. Only about one-third of all consumers check their credit reports annually, and as a result, many of them may be paying more for loans and insurance because of credit report errors.
One of the reasons this may happen with medical bills, as opposed to auto loans or credit card debt, is because medical bills can arrive months after an incident, The New York Times reports. In addition, these bills can come from a variety of sources, making it difficult for even fiscally prudent consumers to track them accurately.
"The thing that is most annoying is that we do the right thing, pay our bills on time, really try to stay on top of it, and when we have the chance to save a little bit of money, instead of being rewarded, we're being punished," Darryle Watson, an automotive service adviser who needed to pay more than $9,000 due to a false medical payment, told the news source.
Compounding the matter is the practice of most doctors and hospitals, the Times says. Many fail to report this debt directly to the credit reporting agencies, opting instead to sell the bills to debt collection agencies.
As a result, by the time folks are able to figure out an error, the debt may no longer be owed to a medical provider or insurance company. If the bills are small, these companies may not even bother collecting the payment. While this sounds like a good deal for consumers, the past-due balances can be reported to credit agencies and end up hurting a credit score.
"Collections are weighted more heavily than other unpaid or late bills," Rod Griffin, director of public education at Experian, told the Times.
Consumers who actively check their reports may be able to catch these errors. When this happens, they may choose to contact the collectors directly and set up a payment arrangement. While doing so pays off the past debt, individuals may need to do more — such as alerting the credit agencies — to scrub it from their financial history.
If the consumer's credit report isn't cleaned up, lenders may look more unfavorably on such debts when deciding whether to approve a new loan. These debts can also linger on a report for as much as seven years, leading to costly damage for years to come, especially if the debt goes unnoticed.
However, hope may be around the corner. In May, the U.S. House of Representatives passed a bill that would require paid medical bills to be removed from credit reports after just 45 days, regardless of how quickly the bills were paid. Many consumer advocates say this could go a long way to helping ease consumers' financial burdens.
Despite the bill's passage in the House, it still needs Senate approval, and many observers are pessimistic about the bill's chances. With the close of the 111th Congress, the legislation will need to be re-introduced in the 112th Congress.
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