What to know about how medical debt affects your credit rating

As of July 1, the three largest credit reporting agencies — Equifax, Experian and TransUnion — have changed the way medical debt affects people’s credit ratings.

Medical debt has become pervasive, as health care and insurance costs continue to rise, while income has not kept up with inflation. About 23 million people in the United States — roughly 9% of the population — owe at least $250 in medical expenses, according to the Peterson-Kaiser Family Foundation Health System Tracker.

Black people, women, people with complex medical issues, and those with low incomes are most likely to have medical debt, and report the highest amounts of medical debt, the survey found. When that debt is factored into credit ratings, already vulnerable people may have an even harder time getting a car loan, mortgage or new line of credit.

Here’s what you need to know about the changes to how medical debt affects credit ratings.

As of July 1, medical debt will be removed from your credit report as soon as it is paid. This applies to new debt or existing debt that may be bringing down your credit score.

At the same time, medical debt will not be recorded in your credit rating until it has been delinquent for one year. Previously, medical debt could appear in credit ratings after six months.

Beginning next year, only medical debt of at least $500 can be reflected in your credit rating. Medical debt below that amount will not be recorded by credit rating agencies.

Debts such as unpaid credit card or utility bills, and missed car loan or mortgage payments are considered a reflection of how financially responsible and stable a person is, said Jim Francis, a partner at the Philadelphia consumer rights law firm Francis Mailman Soumilas. But research has found that most medical debt is not a reflection of a person’s financial acumen. Medical bills are often unexpected, the cost of care can be difficult to find out in advance, and billing errors are common.

Most medical providers don’t report medical debt to credit agencies. But when hospitals or doctor’s offices sell medical debt to a collection agency (usually only after it has been delinquent for several months), it may be reported.

Check your credit score regularly. Free reports are available at annualcreditreport.com/index.action. You may have heard that checking your credit score can lower it. Not true. “Hard” inquiries — when a lender checks your credit report — can lower your rating by a few points. But consumers can check their own credit report as many times as they want without penalty.

Pay your bills as soon as you’re able. If you can’t afford to pay the bill in full, contact the provider to find out whether you qualify for financial assistance or a payment plan.

Contact the provider and your health insurer right away if you think you’ve been billed in error, Francis said. Incorrect medical bills can take months to correct, and putting off the task will only further delay the process.

If your debt has already been sent to a collection agency and reported to the credit agencies, file a dispute with the three national credit reporting agencies by calling or visiting their websites, he said. Learn more about your rights on the Consumer Financial Protection Bureau website, consumerfinance.gov/medicaldebt.