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How medical debt affects credit scores

New Jersey residents who are in poor health may have some unpaid medical bills, and if the bills are not paid in a timely manner, the debt may eventually be put on the credit report as an outstanding collection. A recent government report shows that the medical debt appearing on credit reports may have a more adverse effect on overall credit score than other types of debt.

A recent article suggests that medical debt is not like other outstanding balances. Unpaid medical bills typically reflect an event that was unexpected and was beyond the individual’s control. This sets it apart from non-medical debt like a credit card balances where the consumer chose to incur the balance. The credit reports also fail to reflect billing issues with the provider or the insurance company. Many consumers are not aware that they have an unpaid medical bill until it is placed into collection or appears on a credit report.

The government report suggests that medical bills might force credit scores to underestimate a person’s creditworthiness. The study showed that individuals who held medical debt displayed the same behavior regarding their debts as individuals who had 10 more points on their credit score. Those who paid off the bills were scored 22 points lower than individuals who demonstrated similar behavior but did not incur medical bills that went into collection. That change can impact a consumer’s ability to borrow and find attractive rates, and the difference could result in consumers paying substantially more in interest fees for mortgages, cars and other debts.

However, not all consumers are able to pay off the outstanding balances. When faced with heavy medical bills, bankruptcy might provide a person with some relief. An attorney who is familiar with debt relief strategies might be able to help a client understand how bankruptcy might help in his or her case.

Source: Main Street, “Why Does Being Unhealthy Ruin Your Credit Score?“, Chris Metinko, July 07, 2014

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