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Medical debts effect on credit ratings

New Jersey residents who have medical debt may be surprised to discover how much of an effect it can have on their credit score and how common it is. Medical bills represent more than half of all reported collections, and they are the most common type of collection. Additionally, according to the Federal Reserve, nearly one out of every six credit reports include a collection for medical debt, and almost two fifths of Americans saw their credit score drop due to medical debt.

A new bill is in the works that would give people more time to handle medical debts before they end up on someone’s credit report, but many feel that medical debt should not have an impact on credit ratings at all. The reality is that any type of collection item can reduce an individual’s FICO score by as much as 100 points, although the most recent version of FICO ignores any collection item that is less than $100.

There is a variety of reasons that people feel medical debt should not impact someone’s credit rating. For one thing, people do not generally plan to accrue medical debt the way they would take out a car loan or use a credit card; these are usually emergency circumstances. Additionally, many unpaid medical bills are due to billing errors or because someone is waiting for an insurance provider to cover their portion of a bill.

When people have debt beyond their ability to manage, whether from a credit card or hospital bills, bankruptcy can help reduce or eliminate it. A lawyer could explain how bankruptcy works, assist people in choosing the right type of bankruptcy and assist them with their filing.

Source: FOX Business, “How Medical Debt Affects Your Credit Score“, Janna Herron, October 16, 2013

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