Do medical bills affect your credit? It depends on the amount

Medical debt typically doesn’t get reported to the credit bureaus until after it is sent to collections. However, it can drag down your credit score for up to seven years. That said, medical debt under $500 shouldn’t impact your credit at all. That’s thanks to credit reporting changes that went into effect in April 2023.

If you have medical debt, you’re not alone. According to a survey by Peterson-KFF, nearly one in 12 U.S. adults have medical debt, despite the fact that most (over 90 percent) have some form of health insurance.

How medical debt can impact your credit score

In a joint statement in April 2023, Equifax, TransUnion and Experian announced that all medical debt in collections with a balance under $500 will no longer appear on consumers’ reports.

This built on other credit reporting changes made in 2022, which:

• Banned paid-off medical debt from credit reports.
• Required collection agencies to wait at least a year to report any medical debt sent to them to the credit bureaus.

Before these changes went into effect, even medical debt that was paid off could cast a shadow on your credit report by lowering your credit score for up to seven years.

Medical providers typically don’t report medical debt to credit reporting agencies. If you’re delinquent for long enough (typically six months), the debt goes to collections. With the changes made by the credit reporting agencies, you will have a year after your debt goes to collections before it appears on your credit report.

In other words, you may have up to 18 months total to pay off medical debt over $500 or resolve insurance issues before your credit score is impacted.

Will medical debt hurt your ability to be approved for credit? It depends on several factors, including your current credit score and the credit scoring model your prospective lenders use. Generally, the higher your credit score is before delinquent debt appears on your credit report, the further it will fall.

VantageScore versions 3.0 and 4.0 don’t include medical debt in collections to calculate your credit score. If a lender turns to this credit score to approve you for credit, your medical debt will not factor in. However, if your lender uses FICO 8 or 9 for lending decisions,  medical debt over $500 that has been in collections for a year or more will have an impact.

FICO is the most widely used credit model among lenders.

How to deal with medical debt

If you have had to deal with medical issues, you should carefully review your bill and find out exactly what amount you are responsible for and what will be picked up by your insurance. You should also watch out for any billing errors.

In case you have financial problems, you should try to negotiate a settlement or payment plan with your medical provider. There are also professionals called medical billing advocates who could negotiate on your behalf. You may be able to get some help paying your bills from nonprofits, religious organizations or government assistance.

If your debt goes to collections, you should check your credit report to make sure it is not improperly reported. If you find a mistake, you should follow up with the collections agency to sort out the matter. If that doesn’t work, you can dispute the mistake with the credit reporting agency that reports the matter.

Medical bills can make a hole in your finances and sometimes come unexpectedly. If any of the above options doesn’t work, you could turn to a credit card that offers a promotional 0 percent APR. That said, you should have a good plan to pay off the amount before your promotional period ends. Otherwise, you’ll have to pay interest on any remaining balance.

If you don’t qualify for a 0 percent introductory offer, an emergency personal loan could be another option. Though you won’t be able to avoid interest, personal loans come with fixed interest rates that are often lower than most credit card rates.

The bottom line

Thanks to the changes by the three major reporting bureaus, you have more time to deal with medical bills before they impact your credit score.

If you have medical billing issues, you should try to sort out the matter with your healthcare provider and insurance company so that your credit is not impacted. If you can’t pay these bills, try to seek help from other organizations or turn to a medical billing advocate.

If none of these are viable options, a 0 percent APR credit card or a personal loan could make repayment more manageable. Both options allow you to split a large bill into smaller installments. But remember, these are a form of debt, so make sure you can afford your payments before turning to these options to avoid unpleasant surprises.