While not all healthcare providers will report unpaid debt to credit bureaus, medical debt that ends up on your credit report could damage your credit score in the long run. That said, there’s a little sigh of relief for consumers where medical debt reporting is concerned.
In a process that started in July 2022, the three major credit bureaus, TransUnion, Experian, and Equifax, introduced the first stage of changes to medical debt reporting. This included extending the time period before unpaid medical collections appear on credit reports from six months to one year.
Additionally, paid medical bills are no longer included in credit reports, meaning they will not impact credit scores.
Further, with effect from April 2023, medical debt for consumers who initially owed less than $500 has been removed from consumer credit reports.
These changes will benefit you in the following ways:
Time to Renegotiate the Bill with the Hospital
If a medical bill was initially reported but is later removed from your credit report, you have a full year which you can use to renegotiate, dispute, or work up payment plan with the hospital or healthcare provider before the bill can be re-added to the credit report.
This eases the strain and stress of debt payment, consequently, reducing the chances of getting a low credit score.
Opportunity to Consolidate Multiple Medical Bills
There are various ways to consolidate your medical debts. For example, you can pay it off with a zero-interest credit card and then pay off the credit card balance over time. Many credit cards offer promotional periods with zero interest rates for a certain period of time, typically between 12 to 18 months.
Other ways to consolidate your medical debts include taking a personal loan, taking a home equity loan, and enrolling in a debt management program.
How Changes in Medical Debt Reporting Impact Credit Scores
For starters, a longer grace period increases your chances of preventing your medical debt from ending up on credit reports.
Initially, like all other debt, paid medical debt would still reflect on your credit report for seven years. With negative information on your credit report, your credit scores continue taking a hit.
The removal of paid medical debts and the exemption of debts of $500 and below from credit reporting, therefore, gives your credit scores a great boost.
There are significant benefits of higher credit scores:
Better Loan Terms
Lenders view consumers with low credit scores as high-risk and will likely either turn you down or offer less favorable loan terms. Higher credit scores can provide you with greater financial flexibility and potentially save you money on interest charges. This is because lenders see you as a responsible borrower, making you more likely to be approved for loans, mortgages, and car leases.
You may also get lower interest rates, longer repayment periods, or larger loan amounts.
Increase in the Pool of Credit Cards You Can Qualify
A higher credit score can increase your chances of qualifying for credit cards with better terms. Credit card issuers use credit scores to work out your creditworthiness, and with a higher score, you may qualify for credit cards with better rewards programs, favorable interest rates, and higher credit limits.
Having a wider range of credit card options could allow you to choose a card that better fits your spending habits and financial goals. That said, it’s important to use credit cards responsibly and to avoid taking on too much debt, which could harm your credit score in the long run.
The Take Away
No one plans to have a medical debt, as it may come as an emergency. However, even with insurance coverage, not all expenses may be fully covered. This can put pressure on your finances in addition to your health. The changes in medical debt credit reporting are predicted to help more than 70% of consumers to not only have more time to manage their medical debt but also do the same with the least negative impact on their credit health.
Finally, it is advisable to regularly check your credit report to ascertain the implementation of the changes.
