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How Do Medical Bills Affect Your Credit?

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In a Nutshell

In 2017, the American Psychological Association found that 72% of Americans felt stress about money sometime in the prior month. Many Americans also stress about how their debt will impact their credit score, since a low credit score can prevent families from securing housing, obtaining certain jobs, and borrowing money in a time of need. One of the most common types of debt that can impact your credit score is medical debt.

Written by Natasha Wiebusch, J.D.
Updated June 21, 2021

In 2017, the American Psychological Association found that 72% of Americans felt stress about money sometime in the prior month. Although financial stress can be complex, there are common things that Americans typically stress about, including household costs, rent or mortgage payments, and above all, debt.

Many Americans also stress about how their debt will impact their credit score, since a low credit score can prevent families from securing housing, obtaining certain jobs, and borrowing money in a time of need. One of the most common types of debt that can impact your credit score is medical debt. 

Unfortunately, even with health insurance, many Americans suffer financial hardships caused by medical debt because insurance companies almost never pay the full amount of medical expenses. For those who are currently dealing with medical debt, it's important to understand how medical bills affect your credit score and how you can make paying down medical debt more manageable.

What Is Credit?

Credit represents the amount of money you are able to borrow. There are two main things you need to be aware of to understand how your creditworthiness is determined: credit reports and credit scores.

Credit Reports

A credit report documents your entire borrowing history and all of the repayments you’ve made on the money you’ve borrowed. A credit report will show, for example, how much money you borrowed in student loans, along with all of your monthly payments. It will also show what you owe on your credit cards, your car loan, your mortgage, etc. A credit report will also show any bankruptcies you’ve filed, any mortgage foreclosures, and any medical collection accounts, which is where your medical debt is held after you become significantly delinquent on your payment obligations.

Credit reporting is a highly regulated practice in the United States. There are three major credit bureaus, also called credit reporting agencies, that compile highly respected credit reports on Americans: Experian, TransUnion, and Equifax. These credit bureaus receive information about your borrowing history, your income, and all of your accounts from lenders, banks, and other third parties.

For example, Chase Bank reports your account information to the credit bureaus. However, not all third parties report information to every credit bureau, so your credit report might look different depending on which bureau you get it from.

Credit Scores

credit score, on the other hand, is not a report. It’s a number calculated using all of the information that's in your credit report. It's a complicated mathematical calculation. Your credit score represents how likely you are to pay back money that you borrow. The higher your credit score, the more likely you are to pay any borrowed money back. The lower your credit score, the more likely you are to default on a loan (go without making payments on a loan for 90 days or longer). This number helps lenders, like banks, decide whether to approve any loans you apply for, interest rates, and how much to lend.

There are many different credit scoring systems that lenders can use, but the most popular system is the FICO Score, which scores borrowers on a scale between 300 and 850. FICO’s biggest competitor, VantageScore, uses the same scale for most of its versions. 

Both FICO and VantageScore have created different credit scoring models over time as they update their calculation processes. For example, VantageScore currently uses VantageScore 3.0 and 4.0. FICO, on the other hand, uses FICO 8 and FICO 9. 

What Impacts Your Credit Score?

There are many things that impact your credit score, including:

  • Paying Your Bills on Time. Your payment history is very important for your creditworthiness. Paying your bills on time will improve your credit score over time. Missing any payments will have a negative impact on your credit score.

  • Taking Out Different Kinds of Loans. Having a diverse portfolio of credit use is good so long as you’re paying them all of your accounts on time. People who have a car loan, mortgage, one or more credit cards, and student loans typically have the best credit scores as long as they’re paying them.

  • Keeping Your Credit Card Debt Low. Using your credit cards and paying off the balance every month is good for your credit. Keep in mind that using more than 30% of your credit card limit is generally not good for your score.

  • Opening New Accounts and Length of Accounts. The longer your credit history and the more accounts you have, the better. This factor carries less weight in determining your credit score than other factors, but it's still important.

Why Is It Better To Have A Higher Credit Score?

Having a good credit score is beneficial for many reasons. A good credit score will help you get significant loans at better interest rates, give you access to credit cards, get you better rates from insurance companies, and give you better housing options.

How Do I Get My Credit Report?

It’s a good idea to check your credit report regularly to get a snapshot of your credit and make sure that the information each bureau has recorded is accurate. Inaccurate information can drag down your credit score, so it is worth correcting. All three credit bureaus are required by law to give you a free report once every 12 months. However, they don’t send it to you automatically.

If you need help getting your free credit report, check out Upsolve’s step-by-step guide. Note that due to the Covid-19 pandemic, Americans are entitled to free credit reports on a weekly basis, for a time.

How Do Medical Bills Affect Your Credit?

Medical bills will affect your credit if they go unpaid long enough for your healthcare provider to send them to a debt collection agency. Debt collection agencies will report the past due or unpaid medical debt to the credit bureaus. These past due accounts will show up as medical collection accounts.

If your account becomes overdue by a significant period of time, it will almost certainly be reported to the bureaus as delinquent. This will affect your credit score negatively. Also, two other factors help to will determine whether your credit score is impacted and by how much: the amount of your medical bill and which FICO model your lender uses to calculate your credit score.

Under the previous credit score model, FICO 8, any bill over $100 could negatively affect your credit. Under the new system, FICO 9, overdue medical bills are treated differently and in a way that doesn’t always hurt someone’s credit.

Unfortunately for those with medical debt, most lenders are still using the older FICO 8 model. So, if you’re taking out a car loan or applying for a home loan and you have medical debt, your credit score will almost certainly be affected by the debt since your lender will probably be using FICO 8.

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Dealing With Medical Debt

It’s important to deal with medical debt to avoid the stress of facing lawsuits and other financial issues in the future. Below are a few things you can do to help you deal with medical collections agencies efficiently and fairly, even if you know you can’t pay it all back.

1. Know Your Rights Under The Fair Debt Collection Practices Act (FDCPA).

Under the FDCPA, debt collectors can’t harass you or lie to collect money from you. This includes debt collectors from medical collection agencies. For example, they can't call you at work once you ask them not to or contact you before 9 a.m. or after 9 p.m. If you choose to speak with them, they must be truthful with you and they can’t use abusive language.

The FDCPA also requires that debt collectors “validate” any debt that they’re seeking payment for, which means they have to prove that the debt actually exists. To do this, they need to send you a validation letter within five days of contacting you. The validation letter must contain certain information to meet legal standards, including how much you owe, the name of the healthcare provider seeking payment, and other details. If they can’t validate the debt, then they have to remove it from collections.

So, regardless of the amount, remember that under federal law, medical debt collectors have to follow strict rules regarding how and when they can communicate with you.Still, debt collectors have the power to file lawsuits to seek repayment, even if you decide not to speak to them.

2. Make Sure That The Debt Is Actually Yours.

It’s important to make sure that the debt in question is actually yours. Under the FDCPA, you have the right to dispute the debt by demanding a verification letter. A verification letter is like a validation letter, but it provides more specific information about the debt.

A common reason for disputed debt is - quite simply -  mistakes. For example, the medical billing department or the collector may have made a mistake in their records.  Entering the wrong code or using the wrong Social Security number alone could saddle you with debt that isn’t yours.

Errors may also occur if your insurer doesn’t process your insurance claim appropriately. Even your medical provider may have made a mistake in their notes about the medical services they provided, which would lead to inaccurate medical costs. If you have any questions about how your health insurance company or your service provider has billed you, contact them right away.

Once you’ve disputed the debt, the debt collector cannot contact you again until they’ve sent you a new verification letter.

3. Make Sure That You Haven’t Already Paid The Debt.

Patients will often pay their medical bill right before or after the provider has sent it to collections. If this happens, a billing department might forget to contact the debt collection agency to inform them of the payment. Or, the collection agency may not have kept record of your payment to the collection account. 

If you think that you may have already paid a particular medical bill, make sure to check with the provider’s billing department. You can also check your transaction history with your bank.

4. Negotiate A Payment Plan Or Settle.

You can also try to negotiate a payment arrangement with the debt collection agency wherein you make payments on the medical debt over a period of time, usually through monthly installments. Or you can offer to enter a debt settlement with the healthcare provider. Through a debt settlement, you may be able to negotiate a lower total if you agree to pay it all at once in a lump sum.

Ultimately, debt collectors will always prefer full payment, but your provider may work with you if you’re experiencing financial difficulties and you know you can’t pay your total bill over a reasonable amount of time.

5. File For Bankruptcy.

Another option available to you is filing for Chapter 7 bankruptcy. Through Chapter 7 bankruptcy, you’ll be able to discharge your unsecured debt. As most medical debts are unsecured, it’s fairly simple to discharge them in bankruptcy.

Improving Your Credit

Even if your credit score has taken a hit in recent years, this doesn’t mean that credit repair is impossible. Anyone can repair their credit score because credit history typically only lasts seven years. This means that over time, new financial information replaces old financial information.

If your credit score has dipped because of medical debt, you can start to repair your credit by yourself by doing the following:

  • Make sure to pay all of your bills on time moving forward.

  • Take out small loans that you know you can pay back.

  • Limit how much you put on your credit card so that you can pay off the balance in full each month.

Also, make sure to follow a budget and put money in a "nest egg." Doing these things can help you have money available for emergency situations in the future.

Let’s Summarize...

Under the new FICO model, overdue medical bills don’t have as much of an impact on your credit as they did in the past. For now, many lenders still look at older FICO models. Under these older models, medical bills can still negatively affect your credit score, and therefore, your ability to take out new credit moving forward. It’s important to pay medical debt if you can so that you don’t have to deal with debt collection activities, including lawsuits for unpaid medical bills. But if you can't pay all of it, you have options.

Written By:

Natasha Wiebusch, J.D.


Natasha started her career as a lawyer representing labor unions and other investors in multi-state class action lawsuits. Passionate about the civil rights elements of her cases, she moved into practicing employment law to represent employees against discrimination of various ki... read more about Natasha Wiebusch, J.D.

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