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How Medical Debt Can Affect Credit Scores

While political pundits across the country debate the value and necessity of federal health-care reform in the U.S, many people are caught up in a different kind of medical dilema – how to pay the bills. In the United States, consumers spend an estimated fifty percent more per person on health care than other developed nations. When an physical exam can set you back $100 or more, a chronic condition or an emergency may mean hundreds or even thousands of dollars in medical bills. Although medical debt may be treated differently than other financial obligations, it can still have a major impact on your credit.

The worry over debt isn’t just limited to household expenses, more and more people are having problems with health and medical-related issues. According to PBS, one in three Americans are burdened with medical bills. High unemployment, spiraling health care costs, people without health insurance and employees being asked to pay a greater portion of their health-care costs are a recipe for medical debt. One question that many people ask is what affect medical debt will have on their credit reports and score.

Is Medical Debt Different?

Medical debt is similar to other types of unsecured debt with repayment expected in a timely fashion and various fees applied as per your specific agreement. Medical debt, unlike college loans, can be discharged through bankruptcy. Where it differs is, although it may be included in your credit report and have a negative effect on your credit score, it’s typically left unreported to the credit reporting agencies.

Physicians and hospitals are in the business of helping people, not chasing down delinquent patient accounts. Most medical service providers avoid extending credit and expect payment in full when their services are rendered. Many may allow some time for their patients to fulfill their financial obligation, but once that fails they have little choice but to send the account to a collection agency.

The Damage Collections has On Your Credit Score

There is no doubt that unpaid medical debt that is outsourced to a 3rd party debt collector will be reported to the three major credit bureaus. The algorithms used by the credit reporting agencies to determine your credit scores are not public knowledge, but you can expect a decline of approximately 100 points when your medical debt is sent to collections, the same as other types of consumer collection accounts. The negative entry will remain for seven years, even if the account has been settled or paid off.

The Importance of Being Proactive and Disputing Errors

The devastating hit your credit score will take makes it imperative that you address any medical billing or collection errors. You need to make sure that the report is not the result of an error in billing or insurance processing but, in fact, a result of your inability or neglect to pay. If you suspect or know of a processing or billing error, take immediate action to have it removed. That one isolated collection account may make the difference between approval and denial for your next credit or loan application.

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