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Credit Reports & Scores

Relief From Painful Medical Debt

The three major credit reporting agencies have agreed to delay the time it takes for an unpaid medical bill to show up on a credit report.

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You can easily rack up tens of thousands of dollars in hospital and doctor bills during a major illness. And even if you’re insured, you may be overwhelmed by the barrage of explanations of benefits from providers. But soon, consumers across the country may breathe a little easier.

See Also: 50 Ways to Cut Your Health Care Costs

As part of a settlement with the New York attorney general, the three major credit reporting agencies—Equifax, Experian and TransUnion—have agreed to wait 180 days after an unpaid medical bill goes into collection before including it on a credit report. (Often, bills aren’t considered to be in default until they’ve gone unpaid for at least 60 days.) If an insurer later pays the bill, the debt will be cleared from the report. (The debt may stay on the report if the patient is liable for the bill.)

Unlike other types of debt, such as unpaid credit card bills, overdue medical bills are often one-offs that mar otherwise clean credit records. And, according to a Consumer Financial Protection Bureau study, they appear to be less predictive of creditworthiness. Bills may go unpaid because of disputed claims or because patients are unaware that they have debts in collection.

The reporting changes will be phased in gradually, with all rules in effect by June 8, 2018, says credit expert John Ulzheimer, of Credit Sesame. And it may be some time before credit scores that many lenders use to judge creditworthiness reflect a fairer evaluation of medical debts. FICO Score 9, the newest version of the most widely used credit score among lenders, ignores all collection accounts that have been paid and puts less weight on medical debts in default. But most lenders haven’t updated to FICO Score 9 yet, says Ulzheimer.