Are Medical Bills Allowed to Be Reported on Your Credit Report?

At any given time, 77 million Americans have problems trying to pay back medical debt, despite most of them owning a health insurance plan, according to New York City-based nonprofit The Commonwealth Fund. Medical bills can tax a person's finances and wreck his credit score. Paying your medical debt as scheduled, however, won't win you any points.

Identification

As of 2010, the major credit reporting agencies cannot report medical history on a consumer's credit report, because of privacy concerns. The only time a creditor or credit reporting company can list medical bills on a report is when they go unpaid. Hospitals can send any unpaid medical bill to a debt collector, which then goes on a report as an outstanding debt.

Effects

When an unpaid medical bill goes to collections, it stays on a report for seven years unless the consumer can prove that the account is listed in error. Lenders consider collections accounts a very serious offense and having one damages a score by about 100 points. The actual damage caused by a collections account increases when a person has good or better credit.

Prevention

TransUnion, one of the major credit rating companies, suggests a reserve of funds to get you through a few months on unemployment or when insurance does not completely cover a bill. Alternatively, consider a high-limit credit card only to be used for medical emergencies. Put money into a "flexible spending account" if your employer offers it; this allows you to pay for medical bills with pre-tax dollars. If the insurance company slows payment on a bill, you might want to pay it off and then deal with the insurer.

Tip

Consumers can add an explanation for a collections account on their credit report. Although an addendum does not affect a credit score, lenders and employers often consider the explanation when reviewing an application. Lenders often ignore unpaid medical debt in collections, because it is so common. Paying a medical bill won't remove it from a report, but it does look better than leaving it open.