Medical Debt & Your Credit: What's New & How to Protect Your Score

Medical debt—it's a concern many of us face, often unexpectedly, and it can throw a wrench into even the most carefully managed finances. For a long time, medical bills could severely damage your credit score, making it harder to get loans, mortgages, or even rent an apartment. But thankfully, there have been some important shifts in how credit bureaus handle medical debt, offering consumers a much-needed reprieve. As your senior credit consultant at CreditWell Consulting, I'm here to break down what these changes mean for you and how to navigate the complexities of medical debt.

The Old Way: How Medical Debt Traditionally Impacted Credit

Historically, medical debt, once it went to collections, was treated much like any other unpaid debt. It would appear on your credit report as a negative mark, lowering your credit score. The unique aspect of medical debt, however, is that it often isn't elective. Accidents, sudden illnesses, or chronic conditions can lead to massive bills that are difficult to manage, even with insurance. This led to a situation where individuals were penalized on their credit reports for circumstances largely outside of their control.

A significant issue was the lag time. It could take months for an invoice to be processed, sent to insurance, and then for the remaining balance to be billed to the patient. Often, by the time the patient received the final bill, it was already close to being sent to collections, or they were unaware of the charges until a collections agency contacted them. This left little room for negotiation or payment planning before the negative impact hit their credit.

What's Changed Recently (and Why It Matters)

Major credit reporting agencies (Equifax, Experian, and TransUnion) have implemented significant policy changes regarding medical debt. These changes are designed to reduce the negative impact of medical bills on consumers' credit reports, recognizing the unique nature of this type of debt.

The key changes include:

• **Removal of paid medical collection debt:** As of July 1, 2022, all paid medical collection debt has been removed from consumer credit reports. This is a massive win, meaning if you’ve settled an old medical collection, it should no longer be hurting your score.
• **Increased waiting period:** Starting approximately July 1, 2022, there is now a one-year waiting period before unpaid medical collection debt appears on your credit report. This gives consumers more time to resolve the debt with their insurance provider or healthcare facility before a collections agency gets involved and reports it.
• **Higher threshold for reporting:** The most recent change, effective in the first half of 2023, is that credit bureaus will no longer include medical collection debt under a certain threshold on credit reports. Specifically, medical debt under $500 will no longer be reported. This helps protect individuals from small, lingering medical bills that often confuse consumers and create unnecessary credit damage.

These changes are a direct response to consumer advocacy and data showing that medical debt is a poor predictor of an individual's financial responsibility. They are designed to give consumers a fairer chance at maintaining good credit, even in the face of unexpected health crises.

How to Protect Your Credit from Medical Debt

Even with these positive changes, proactive steps are crucial to prevent medical debt from negatively impacting your credit.

• **Review medical bills carefully:** Always scrutinize hospital and doctor bills for errors. Mistakes are common, from incorrect charges to duplicate services. Request an itemized bill to understand exactly what you're being charged for.
• **Communicate immediately with providers:** If you receive a bill you can't pay, don't ignore it. Contact the healthcare provider's billing department. Many hospitals have financial assistance programs or can help set up payment plans. Often, they prefer to work with you directly rather than sending the debt to collections.
• **Understand your insurance:** Know what your policy covers, your deductible, and your out-of-pocket maximum. This knowledge can prevent surprises. If
• your insurance denies a claim, appeal it.
• **Negotiate, negotiate, negotiate:** Healthcare providers often have flexibility in pricing, especially for uninsured or underinsured patients. Don't be afraid to ask for a lower price or to see if they offer a cash discount.
• **Be wary of collection agencies:** If a medical bill does go to collections, be aware of your rights under the Fair Debt Collection Practices Act (FDCPA). Request validation of the debt before making any payments. Remember the new credit reporting rules—collection debt under $500 won't be reported, and paid collection debt should be removed.

What to Do if Medical Debt is Still on Your Credit Report

If you find medical debt on your credit report that shouldn't be there—for example, if it's paid, under $500, or within the one-year waiting period—you have the right to dispute it with the credit bureaus.

• Gather documentation: Collect proof of payment, insurance explanation of benefits (EOB), or any correspondence with the provider or collection agency.
• Write a dispute letter: Clearly explain why you believe the information is inaccurate or should be removed.
• Send it to all three credit bureaus: Mail your dispute via certified mail with a return receipt requested. The credit bureaus have 30 days to investigate your dispute.

These recent changes offer significant relief, but managing medical debt still requires vigilance and informed action. By understanding the new rules and taking proactive steps, you can shield your credit score from the unexpected burdens of healthcare costs. At CreditWell Consulting, we're dedicated to helping you navigate these financial challenges. If you have questions or need assistance, don't hesitate to reach out.