How Much Do Medical Collections Hurt Your Credit Score?

No one, unless they're sporting a major case of Munchausen, wants to find themselves hospitalized. It's just too expensive. Even people with insurance are often responsible for co-pays and co-insurance charges that far exceed what they're able to pay. As a result, it isn't uncommon for medical debt to end up in collections. Roughly 50 million people in the U.S. are currently making payments on some form of medical debt. Many don't succeed--making medical bills the number one cause of bankruptcy in this country.

If you're one of the many Americans living paycheck to paycheck, paying off exorbitant medical bills may not be an option. Ignore your medical debt, however, and it will eventually end up in collections and damage your credit scores. This is the choice that thousands of Americans are faced with: go without necessities in order to make payments on medical debt or let their credit scores take a hit.

How Do Unpaid Medical Bills Affect Your Credit Scores?

If you don't pay off your medical bills, the doctor or hospital you owe will eventually turn your account over to a collection agency. The collection agency's task is to collect as much of the debt as possible. The collection agency keeps a percentage of whatever they collect as payment for their services.

A medical emergency may cost you your good credit.

Hospitals and doctors' offices don't report your debts to the credit bureaus. Even if you set up a payment plan and faithfully adhere to that plan, the payments you make toward your medical bills don't show up on your credit report and help boost your credit scores. As unfair as it sounds, the only impact medical debt can have on your credit report is a negative one. Collection agencies routinely report their accounts to the credit bureaus. Collection accounts are always negative and will significantly damage your credit scores. Paying off the debt doesn't change this. Paid medical collections are just as damaging to your credit rating as unpaid ones.

How Much Medical Collections Hurt Your Credit Scores

The affect any item--positive or negative--has on your credit scores depends on how good or bad your credit is when the item initially appears on your report. The better your scores are when a medical collection appears on your report, the more credit points you'll lose. I'll give you some ballpark figures, but none of this is set in stone. In other words, your mileage may vary.

On average, a collection account of any variety will cost your credit score about 100 points. If you have excellent credit, expect your scores to take a bigger hit. The opposite, of course, is true for those with bad credit. If your credit is already in shambles, you may lose only 50 points--sometimes less. Time also plays a big role in the impact a medical collection has on your scores. The older a collection account is, the less it affects your credit.

How Long Does Medical Debt Stay on Your Credit Report?

Medical collections remain on your credit report for seven years. The original delinquency date generally won't show up on your credit report. What will show up is the date the collection agency first reported your medical debt to the credit bureaus. That date has no impact whatsoever on the date the credit bureaus must remove the item. The date of removal is set in stone regardless of what state you live in or whether or not you've ever made a payment on the debt.

The exception to this rule is if the collection agency sues you and wins a judgment. A judgment will remain on your credit report for either the amount of time that the judgment is enforceable in your state or seven years, whichever period is longer. In addition to giving the collection agency a wider range of debt recovery options, judgments also do significant damage to your credit rating.

Medical Collections Often Carry Less Weight With Lenders

Now for the good news. (Didn't think there was any of that, did you?) Lenders who pull and review your full credit history often place less importance on medical collections than other types of collection accounts. This is because a medical collection on your credit report doesn't scream "I'm financially irresponsible!" like, say, a defaulted credit card. Lenders know that medical emergencies are out of your control. Thus, even though the medical debt shows up on your credit report and hurts your scores, it may not be an obstacle with some lenders.

There are exceptions to this rule as well. If the debt is still within your state's statute of limitations, your lender has the right to turn down your application until you either pay off the debt or the statute of limitations passes. This is nothing more than the lender protecting its own interests. After all, no lender wants to finance an item that can be liened or seized due to an unpaid medical collection.

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Can a Doctor or Hospital Send Medical Bills Directly to Collections Without Notifying You?

No matter how careful you are with your finances, a medical emergency can pose a threat to your credit scores. If a doctor or hospital sends your unpaid medical bills to a debt collector, the collection agency is likely to report those debts on your credit report. Unfortunately, the FICO credit scoring formula doesn't discriminate when calculating your credit scores. Any collection over $100 has the same devastating effect on your credit scores (and sometimes collections under $100 can do the same thing depending on the version of FICO your lender pulls) This means that a collection account for an unpaid medical bill can hurt your credit just as much as a collection for a defaulted credit card.

Every mom in the world is quick to point out to their kids that life isn't fair, but the idea that a medical emergency--something you have no control over--can make lenders consider you just as high

Medical debt can go to collections

a risk as someone who just doesn't pay his bills is really and truly unfair. What's even more unfair is the fact that a hospital doesn't have to give you any notification at all before turning your debt over to a collection agency.

Some Medical Bills Go Directly to Collections

Hospitals are accustomed to billing insurance companies. If you don't have insurance (and yes, there are still plenty of people out there without it) the hospital is supposed to bill you directly. Unfortunately, this doesn't always happen. Sometimes billing errors (or pure unadulterated carelessness) result in you not receiving your bills but sometimes, hospitals send your medical bills directly to a collection agency--without even attempting to get payment from you directly.

Why Hospitals Don't Contact You First About Your Bill 

A hospital may send your bill directly to collections for a number of reasons. The primary reason, however, is convenience. To some hospitals, its worth paying the commission to the collection agency to not have to deal with your account. Billing you directly, negotiating the debt and working out a payment plan all require time and resources on the part of the hospital. It's much easier to simply send the bill directly to a collection agency and let debt collectors do all of the work. This is especially true if you have a coinsurance plan. Your coinsurance has already paid

Another reason a doctor or hospital may send your medical bill directly to collections is that this method robs you of the opportunity to dispute the bill. Medical collection agencies often put extreme pressure on you by giving you a set amount of time to pay the debt before they report the account to the credit bureaus. Once the account appears on your credit report, your credit scores suffer. This limited time frame in which to protect your credit scores doesn't give you the time you need to dispute a medical bills you believe is inaccurate--forcing you to choose between fighting for the correct amount or saving your credit scores.

What Can You Do to Prevent Medical Debts Going Directly to Collection Agencies?

Unfortunately, there are no laws requiring doctors and hospitals to notify you first before sending your bills to collections. Doctors and hospitals are original creditors. This means they aren't bound by the Fair Debt Collection Practices Act, which governs the behavior of all third-party debt collectors.

The best way to ensure that your bills are sent to you rather than directly to a debt collector is to contact the doctor or hospital's billing department and ask about their policies. Make sure that your address is correct in their system and ask if you have any outstanding bills. If you do not, call back a week later and ask again. Keep in mind that, according to your insurance provider's policies, doctors and hospitals can wait up to a year after the date of service to bill you or your insurance company, so don't stop checking up on your debt until the billing office is willing to give you a zero balance statement, in writing, for the medical services you received. In the event a collector tries to collect the debt from you in the future, a zero-balance statement from the hospital is your greatest armor against the collection agency and any potential credit damage connected to your previous medical debt.

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