Does Medical Debt Impact My Credit Score?

On July 1st, 2022, several nationwide credit reporting agencies (NCRAs) adjusted how they approach medical collections. Whether you’ve already read the press release or this is your first time hearing about it, you probably have a few questions, like:

How does medical debt work?
What policies were revised this July?
Can medical debt be removed from my credit report?

Continue reading to understand everything you need to know about the new changes, and how medical debt will impact your credit score in the future.

Dollars with stethoscope on them. Costs for the medical insurance

Medical Collections and Credit: FAQs You Might Be Asking

Following the July revisions, several NCRA’s put out press releases announcing the incoming changes. But let’s be honest, the corporate jargon in these documents can be confusing, and you might be left with more questions than answers.

Luckily, the team at Finance Solution compiled a list of helpful information to help you navigate the new changes. Check out a few common questions we hear, and see if we answered yours:

How Does Medical Debt Work?

When you have a medical insurance plan, it’s crucial to understand the Explanation of Benefits (EOB), which details exactly what’s covered in your policy. For example, let’s say you got sick and had to spend a few days in the hospital. The hospital will bill your insurance company for the medical care they provide. Once the invoice comes through, your insurance provider will cover the costs for any treatments included in your EOB, and bill you the remaining balance for services they didn’t cover.

If this outstanding balance goes unpaid, they’ll attempt to collect the money through mail or phone calls, which could last anywhere from one to three months. After this period, if the debt remains, it’ll be sold to a medical collections agency to try and collect on it. Generally speaking, your credit score is at-risk of dropping once your debt reaches a third-party collection agency.

Will Overdue Medical Debt Still Go to Collections?

With the new reporting policy announced, outstanding medical debt won’t appear on your credit score for an entire year after your initial bill. However, after that one year is up, your credit score will start to tank.

It’s important to note your credit will only take a hit if the remaining debts are over $500. As a helpful tip, if you’re receiving letters about pending medical debt, consider the following steps:

When you get a bill, notify the sender you’ve received it.
Reach out to your provider, and raise the concern that there might be potential mistakes on your bill (Nearly 80% of medical bills contain errors)
By doing this, you’re “freezing the clock” on when your debt can be considered “default”, and thus sold to a collections agency.

According to Equifax, which one of the three largest NCRA’s “When you receive your bill, be sure to examine it carefully … If you believe you’ve found an error, contact your medical provider or health insurance company. Ask for an itemized bill so you can better understand what you’re being charged for.” Essentially, having the hospital review your bill gives you more time to pay overdue debts, and it could potentially reduce the overall amount owed.

If you’ve been watching the news lately, you’re all too familiar with the downward trend of our economy. Many economists are hinting at a recession, and you may find yourself asking, “What should I do to manage my finances?”

Check out eight things to keep in mind

What Else Changed About Medical Bill Collection Laws in 2022?

The July 2022 revisions changed the medical collections process in three main ways:

The timeline of unpaid medical debt appearing on your credit reports increases from 6 months to 1 year.
If you’ve had outstanding medical collection debt, but already paid it off, it’ll no longer appear on your credit report.
Starting in the first half of 2023, NCRAs will no longer include medical debt in collections under $500 on credit reports.

By eradicating paid debts from your credit report, you’ll find it much easier to finance for future purchases that require pulling from credit.

Need Help Managing Outstanding Debt? Get in Touch With the Experts

At Finance Solution, we take pride in easing your financial burdens. Whether you need to refinance loans to free up extra cash, or want to improve your credit score, rest assured knowing the experts have you covered.