Medical bills can potentially be costly and challenging to settle. Patients have to deal with a physician and hospital bills, plus it can involve health insurance providers who may loaf when having to pay these bills. Typically, when payments are not made, the delinquent amounts are handed to collection agencies, which reflect negative credit activity in the person’s credit report. This can indicate a high credit risk, generating a low credit score.

Even if delinquent amounts are paid and marked as such on a credit report, it is not erased from the report for several years unless proven to be a factual error.

How Can a Medical Bill Affect My Credit?

While it is certainly not uncommon for medical collections to appear on credit reports, how it affects credit is left at the lender’s discretion. Institutions all differ in how to deal with a person’s medical bills.

Likewise, where someone is trying to finance or refinance a home loan, it hinges on the underwriting criteria of the mortgage company as to whether medical collections must be paid off as a stipulation for approval.

How Is My Credit Report Put Together?

It starts with your financial activities. You can specify and change your line of credit by getting credit cards or shopping carts, taking out loans and mortgages from banks or other financial institutions, and paying your bills. Your credit providers then submit your credit information to a credit reporting agency such as Equifax, Experian, or TransUnion.

The credit reporting agency will take your credit history and compile it to calculate your credit report score. After this, the agency allows any individuals or institutions with proper authority (including yourself) to view your credit score and history.

How Is My Credit Score Computed?

Credit reporting agencies use various factors to calculate your credit report score:

  • How many credit inquiries have been made, including granted and rejected applications
  • What your usual practice is in paying your bills, such as whether you pay on time and if you pay the total amount on time
  • What types of debt you have, including loans, mortgages, credit card debt, bills, etc.
  • How much outstanding debt you have
  • The length of your credit history (even if you are not in debt if you have no credit history at all, you will be considered as much credit risk as if you had a bad history)

There are some factors that credit reporting agencies are restricted from using when calculating your credit report score:

  • Race
  • Sex
  • Age
  • Ethnic origin
  • Marital status
  • Any federal or state government financial support you receive

What Can I Do to Maintain Good Credit?

Even though someone may have health insurance, that individual alone is ultimately responsible for their medical bills. If a health provider denies coverage, that individual may not know it until the physician has submitted the bill to collections. Periodically running a report from all three credit bureaus is an excellent way to stay abreast of credit activity.

How Can I See My Credit Report?

You can request your credit report from any major credit report agency like Equifax, Experian, or TransUnion. It will usually cost you a small fee to see the information.

What Can I Do About Unpaid Medical Bills that Show Up on My Credit Report?

After noticing unpaid medical bills on a credit report, there are four options:

  • Pay the amount of the bill
  • Dispute the bill as a clerical mistake with the credit reporting agency
  • Explain the bill with a consumer statement that the credit reporting agency will attach to your credit report
  • Ignore the bill

What Is My Score?

There is a large amount of data used by FICO in an individual’s credit report. The data used typically fall into five categories, listed in order of importance, which include:

  • Payment history, which includes:
    • account payment information;
    • presence of adverse public records;
    • the severity of delinquency; and
    • number of past due items on file;
  • Amounts owed, which include:
    • the amount owing on accounts;
    • lack of a specific type of balance;
    • number of accounts with balances; and
    • the proportion of credit lines used;
  • Length of credit history, which includes the time since the accounts were opened and the time since there was account activity;
  • New credit, which includes the number of recently opened accounts and the number of recent credit inquiries; and
  • Types of credit used, or the number of various kinds of accounts.

Each of these categories is taken into consideration. The importance of any one factor depends on the overall information in an individual’s credit report.

An individual’s credit score is determined by considering both the positive and the negative information on their credit report. There are some types of information that are not considered, including:

  • Race;
  • Religion;
  • Age;
  • Salary;
  • Occupation; and
  • Place of residence.

What Is a Good Score?

The range of possible credit scores is 300-900. The average credit score is somewhere around 750.

There is a direct correlation between a low credit score and a high default rate. Conversely, as an individual’s credit score improves, their risk of default decreases.

It is essential to mention that an individual’s credit score may differ from credit bureau to credit bureau.

How Can I Improve My Credit Score?

If an individual has a lower credit score, they may be pursuing ways to improve that number. There are numerous ways an individual can improve their credit score, including:

  • Paying their bills on time;
  • Updating their old accounts;
  • Not maxing out their credit lines;
  • Limiting the number of times they apply for credit;
  • Maintaining their accounts for a long time;
  • Staying away from finance companies;
  • Contacting creditors;
  • Seeing a credit counselor;
  • Keeping balances low on their credit cards;
  • Requesting and checking their credit report at least annually; and
  • Managing their credit cards responsibly.

In many cases, it is easier said than done to avoid maxing out credit lines and managing credit cards responsibly. On many occasions, people face unforeseen circumstances and turn to their credit cards to pay unexpected expenses. There is absolutely nothing wrong with seeking help if an individual becomes overwhelmed with debt and wants to improve their credit score.

Can Credit Cards Help Me Improve My Credit Score?

Yes, it is possible a credit card could help an individual improve their credit score when it is used correctly. Many people go through their early years without establishing credit, and without considering their actions may affect their credit scores and future purchases.

Many people do not even consider when or what they will need a line of credit for in the future. It usually comes to light during a significant life event, such as trying to purchase a home by obtaining a mortgage or getting a loan for a vehicle.

Many people are not aware that the responsible use of credit cards may help them enhance their credit scores. An individual can obtain a card with a low limit, and if they make full regular monthly payments, they will see an improvement in their credit score.

Being debt-free is essential. Nevertheless, being debt-free does not equal a good credit rating because lenders have no history to examine. If an individual does not start small, such as utility bills and small credit cards, they may have problems with larger purchases.

Should I Speak with a Lawyer to Help Make a Decision?

In most instances, a collection lawyer is extremely useful in negotiating with collection agencies to either work out a payment that you can afford, dispute erroneous bills, or write an explanation of the situation that can be attached to your credit report. Use LegalMatch to have a lawyer represent you if a medical bill is affecting your credit score.