Medical Debt and Its Effect on Credit Scores

According to a new report based on studies conducted by the National Consumer Law Center, nearly 75 million working age adults experienced problems with medical bills in 2012, and about 41 million were contacted by collection agency for their unpaid medical bills. In fact, medical debt surpasses student loan, utility, and credit card or financial debt sought and collected by debt collectors.

Many of the collection agencies provide information on these debts to credit reporting agencies. As a result, millions of Americans are likely to have negative information about their medical debt collection account on their credit reports.

Part of the problem lies in the unique nature of medical debt, being that services are usually provided under involuntary, unplanned, and unpredictable circumstances. It is hard for the average American to have an understanding or estimate of how much certain medical services will cost, because such information is not considered common knowledge, and there lacks promulgation and awareness of how much medical services cost. Given the time crunch and urgent nature of an emergency situation, people often do not have the time to ask for the prices of certain medical services.

Unfortunately, medical debt on a credit report penalizes a consumer's credit score, resulting in a credit score that is generally 10 points lower than where it should be. Some credit score providers recognize this unfairness, and try to revise its reporting system to de-emphasize the impact of medical debt on consumers' credit scores; however, not all credit reporting companies engage in these practices, and the ones that do may not specifically address the different medical debt issues of individual consumers.

Other unique factors of medical debt that could cause unfair credit reporting include the presence of a third party payor (the insurance company), confusion over complexities of insurance and medical billing, presence of Medicare/Medicaid or other programs, and discriminatory pricing. Insurance companies alone present many confusing issues that could delay medical payment.

Mistakes and misunderstandings cause disputes between the insurance company and the provider. An estimated 7 million Americans have reported that medical bills have been sent to debt collector because of a billing mistake.

It is always best practice to consult an attorney about your debt issues, especially with debt collection agencies.

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