An unexpected medical emergency can leave you suddenly staring at bills that you cannot afford to pay. Even if your budget has room for an emergency fund, a medical emergency can completely deplete that fund and leave you with unpaid bills. If they pile up, these medical bills affect your credit score. But the harsh reality is that very few Americans are able to deal with medical emergencies. Many are living pay-check to pay-check. A medical emergency can have a catastrophic effect on your financial peace of mind and completely throw off your savings goals.
Why Medical Bills Affect Your Credit Score
In 2014, the Consumer Financial Protection Bureau reported that more than 50% of the debt showing up on consumers’ credit reports was medical debt. And, for roughly 15 million Americans, their medical debt was the only negative item on their credit report. According to Experian, as of June 2017, there was in excess of $127 billion in medical debt recorded on consumers’ credit reports. This means that even those who are running a tight financial ship, managing income, and expenses and paying bills on time, are completely unprepared to deal with medical debt.
Why do medical bills affect your credit score so negatively? Because the vast majority of healthcare providers send the debt to collection agencies rather than interfacing with consumers. Once a debt goes to collection, it is immediately recorded as a negative action on your credit report. Your credit score can be lowered by 50 or more points, resulting in more difficulty obtaining financing. If you do succeed in securing financing, the terms will not be favorable to you.
Multiple Bills from Multiple Providers
Even if you want to stay on top of your medical bills, trying to organize them all can be a challenge. For instance, if you need to be transported to the emergency room by an ambulance to the nearest hospital, you could receive separate bills from each provider. The emergency room, emergency room physician, hospital and any diagnostic provider, such as a radiologist will bill separately. Rarely do they share the same procedure for collecting payment. Some may contact you directly and others may send it straight to a collections agency. It is not difficult to lose track of these multiple bills, resulting in an oversight that will negatively impact your credit score.
A Reporting Change Offers Some Relief
In recognition of the overwhelming problem of medical debt, the government instituted new reporting rules. These rules took effect in mid-September. Now the three reporting agencies, Equifax, Experian, and TransUnion must give a 180-day period to consumers during which time they can work out a payment plan with medical providers. This six-month period also allows ample time for insurance carriers to pay their portion of your bills. During this time, the debt will not appear on your credit report. This is a huge improvement over the 30 to 60-day period that was the previous norm.
The new rule applies to all new medical debt following the September 15, 2017, kick-off date. If you have bills from before this time, the 180-day cool-off period does not apply and those medical bills affect your credit score. Of course, this remedy is only good if you will be proactive in advocating for yourself with your medical creditors.
Don’t Let Medical Bills Affect Your Credit Score
Be proactive. The worst thing you can do for yourself is to be silent or ignore everything and hope it will go away. A huge pile of unexpected medical debt can be overwhelming but try to dig out as quickly as possible. Pick up the phone and start a conversation. In truth, for the most part, medical providers do not want to send bills to collection and harm consumers. They just want to be paid. Reach out and explain your situation and advocate for a payment plan that you can afford. Be sure to double check the bills to determine accuracy.
More importantly, determine whether any of the charges should have been covered by your insurance company. And while we are on the subject of insurance companies, do not assume that covered expenses are being paid on time. Check in with your providers to verify that they have received payment from your insurance carrier. If there has been a delay, contact your insurance carrier to find out the reason for the delay. Ultimately, the debt is yours, so be proactive to protect your credit score.
If you are having difficulty negotiating with medical providers or your insurance carrier, consider retaining the assistance of a medical billing advocate. These professionals are trained and well-versed in all the intricacies of medical billing and can help you arrive at an affordable solution.
To help you cover your medical bills, consider applying for a personal medical loan or fundraising on a crowdfunding website. The most important thing is to do something.