Medical Bills in Your Credit History
Why Your Medical Credit Score Is Important
The real pain of a hospital stay might not hit until long after you're finished with medical care. Medical bills and your credit interact in complex ways, and medical bills can have serious repercussions if you don't keep a close eye on your credit score.
Medical bills and your credit report
Utility companies, landlords, and lenders are the three primary sources of information that affect your credit report. Late payments and missed payments may damage your credit rating, even if you've never had an unpaid bill go to a collection agency.
For other types of debt, late payments or missed payments only show up on your credit score if the debt is sent to a collection agency.
Therefore, the only way that a medical bill can affect your credit score is if an unpaid medical bill is turned over to collections. Should that happen, the collection agency reports the case to one or more of the credit bureaus. Once the agency makes its report, the black mark remains on your credit report for up to seven years, just as if it were any other unpaid bill.
How medical bills and credit collide
The current credit system doesn't differentiate between defaults on medical bills and other credit mistakes. When lenders look at your credit report, they'll see a collection action on your record, not the reason for the collection action.
The problem with hospital bills and credit is caused by the healthcare system's billing practices. After you receive care, you may not be billed for all services at once. Instead, you receive partial bills from different departments within the same hospital. For example, you may not be billed for preliminary lab work until months after your care was completed.
If you have insurance, the complexity of medical bills increases, because now all of the paperwork is routed through your insurance carrier. In the byzantine world of hospital billing, the natural delay caused by dealing with the middle man, your insurance company, may cause portions of your medical bills to be sent to collections. Even an insured person can suffer a lower credit score because of a medical bill.
The future: Medical credit scores
Until recently, medical bills only affected your credit history if they were sent to a collection agency. However, the Fair Isaac Corporation is pairing with several other investors to develop a system to determine a discreet medical credit score.
The system, dubbed medFICO® by critics, would track payments made by patients receiving medical care. Based on that information, hospitals and other healthcare providers would be able to evaluate the likelihood of each patient's non-payment.
This medical credit score is controversial, and critics are quick to point out potential flaws, should the system go into general use. Privacy issues, the opportunities to violate the Health Insurance Accountability and Portability Act (HIPAA), and medical identity theft are just a few of the potential difficulties forecasted.
To protect your credit history from medical billing errors, request a copy of your credit score, and check for credit mistakes caused by unpaid medical bills on a regular basis. Just as it is with your health, early detection of errors on your credit report can help prevent unwanted consequences.
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