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Your score vs. medical debt

Almost every single form of debt is incurred voluntarily. We choose to open and use credit cards. We choose to apply for and borrow money to buy cars and houses. What we don’t choose to do is get sick or hurt ourselves to the point where we have to incur a large amount of medical debt, some or much of which might not eventually be paid by insurance coverage. And unless you have the capacity to pay for uncovered medical services out of your pocket, it’s likely you may default on your debt and damage your credit reports and the associated credit scores.

How does medical debt end up on credit reports?

It’s unlikely that your doctor or medical service provider reports information to any of the big three credit reporting companies, Equifax, Experian, and TransUnion. But, it is likely that any defaulted medical debt will be outsourced by the service provider (or “consigned”) to a third-party debt collector. And almost all third-party debt collectors, also known as collection agencies, do report to the credit reporting companies.

Can medical collections lower my credit scores?

There are certainly scenarios where medical debt collection accounts can lower your credit scores. The extent to which your scores will be impacted depends on a variety of factors including the age of the collection and the prevalence of other unrelated derogatory information. There also are scenarios where a medical collection will not have any impact on your credit scores. But generally speaking, most medical collections have a negative impact on your credit score.

Can I get medical collections removed from my credit reports?

Under normal circumstances, medical collections, and all other types of collections can legally remain on your credit reports for up to seven years from the date of default of the underlying debt. That statute of limitations comes straight out of the Fair Credit Reporting Act. Of course, if the collection is flat-out incorrect or the debt collector cannot verify the accuracy of the item, then it must be removed immediately, as the law states.

There is, however, another way to legally and ethically get a medical collection removed from your credit reports. In September 2016 the credit reporting companies implemented a new policy whereby they began removing medical collections from credit reports if they had been paid by insurance or were being paid by insurance. This policy ensured that consumers who were saddled with medical debt but also had insurance coverage wouldn’t have to live with a medical collection for 7 years.

Can I delay the credit reporting of a medical debt collection?

You can’t delay the credit reporting of medical debt collections, per se. But, there are policies and laws in place that will delay the credit reporting of medical collections. The first is the National Consumer Assistance Plan or (NCAP). NCAP is the program that resulted in the aforementioned removal of medical collections that were paid by insurance policies. In addition, NCAP will require collection agencies to wait at least 180 days from the date the debt went into default to report to the credit reporting companies. This applies to all consumers.

A veteran receives an additional 180 days to the waiting period. In May 2018, the Fair Credit Reporting Act was amended by the Economic Growth, Regulatory Relief and Consumer Protection Act. As such, by no later than May 24, 2019, medical debt incurred by a veteran cannot be reported for at least one year from the date the services were rendered. Any medical collections incurred by a veteran must be removed from a credit report once the debt has been paid or settled and does not require the payment to come from an insurance company.

In addition, some credit scoring models such as VantageScore 3.0 and 4.0 exclude paid collections, including paid medical collections, when computing a credit score.

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