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Understanding Medical Debt and Its Impact on Your Credit

Dear Experian,

I owe a large medical bill and have been making monthly payments to the hospital, but they recently told me that if I don’t start paying a higher amount, they will turn the debt over to a collection agency. What happens when a medical bill goes to collections? As long as a monthly payment is being made, can this really hurt my credit?

– TKL

Dear TKL,

When a medical debt is sold to collections, the collection agency that purchased the debt may report the account to one or more of the three credit bureaus (Experian, TransUnion, and Equifax) at least a year after the date the account became late and was not brought current. This grace period gives individuals with medical debt one year to resolve any insurance or billing issues and to make payment arrangements if necessary before the past-due balance is reported. Even if you think a medical bill might be incorrect, you should contact the creditor as soon as you receive it to begin rectifying the issue.

How Does Medical Debt in Collections Affect Your Credit?

An unpaid medical collection account can almost certainly have a negative impact on your credit scores if it is over $500 and remains unpaid after one year, even if you are sending in monthly payments. Medical collections under $500 do not appear on your credit report and will not affect your credit scores.

If you are not able to come to an agreement with the provider and they sell your debt to a collection agency that reports to the credit bureaus, the unpaid collection account can remain part of your credit history for seven years from the original delinquency date. The original delinquency date is the date the account first became late leading up to the collection status.

The good news is that paid medical collection debt is no longer included on credit reports. Additionally, medical collection debts of less than $500 will not appear on the credit report.

What to Do When Your Medical Bills Go to Collections

If you are faced with a medical debt that you are unable to pay off, you should always contact the doctor or medical facility immediately to discuss your options. Depending on the circumstances, some medical offices may be willing to set up a payment plan for you that can help you avoid collections and help preserve your credit history.

If you are trying to take care of a medical debt that has already been sold to collections, here are some steps you can take:

• Contact the collection agency to work out payment arrangements. If you are unable to pay the debt in full, some collection agencies may offer you a settlement amount. While settling the debt is better than leaving it unpaid, a settlement is considered negative because you did not pay the full amount owed. Consider all your options before deciding to accept settlement.
• Understand the statute of limitations. The statute of limitations on a debt refers to how long the creditor can legally attempt to collect the money owed. This can vary by state, but it does not have any bearing on how long the item appears on your credit report. Unpaid medical collection accounts over $500 can remain on your report for up to seven years from the original delinquency date.
• Check to make sure your credit reports are updated. Once you pay off the account or bring the balance to under $500, the collection agency will notify the credit reporting companies it reports to that the account has been paid in full. The collection account will then be removed from your credit report. You can check to see how your account is appearing by ordering a free copy of your report from each of the three credit reporting agencies.
• Dispute inaccurate information. If it’s been more than a couple of months since paying off your debt and your account hasn’t been updated, you have the right to dispute the information with Experian using our Dispute Center. You can also upload any documentation you may have to support your claim, such as a letter from the collection agency confirming the debt is paid in full.

How to Rebuild Your Credit After Medical Collections

Rebuilding your credit when you have a collection account on your report can seem daunting, but there are some steps you can take to start improving your credit right away:

• Pay off any past-due debts. Paying off your medical collection account is a good first step to rebuilding your credit. You should also bring any other past-due debts current as soon as possible.
• Make all your payments on time going forward. In time, consistently positive payment history on all your other accounts will help your scores rebound, and the longer ago the collection account occurred, the less it will impact you.
• Pay down your credit card balances. Your credit utilization rate is the second most important factor in your FICO credit scores. Paying your credit card balances in full each month will help you keep your credit utilization as low as possible, which is good for credit scores.
• Sign up for Experian Boost®. With Experian Boost, you can get credit for your on-time utility, cellphone, and streaming service payments going back up to 24 months.

Thanks for asking,

Jennifer White, Consumer Education Specialist

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