Does Having a Medical Bill in Collections Affect Your Credit Score?

About half of all collections accounts exist because of outstanding medical bills, according to the Federal Reserve Board. Unpaid medical bills can result in wage garnishment or other public judgment and destroy a credit rating. A medical bill in collections, however, may not hinder future applications for credit,, and you do not have to declare bankruptcy to pay it back.

Identification

Having any type of account in collections will affect your credit score. If a debt collector makes it public knowledge, the major credit reporting agencies eventually pick it up. This can cause massive damage to your credit score, because collections accounts are a heinous incident in the world of credit, like a foreclosure. On an average score -- around 680 -- a collections could do 85 to 105 points worth of damage

Considerations

Lenders often ignore medical debt in collections because it is so common, according to Conforming Rate. Not all creditors are willing to forgive unpaid medical debt, so you should check with the lender to see what you should do about it. The most common lenders that ignore medical collections are sub-prime lenders, who sell loans at very high interest rates to consumers with poor credit, and Alt-A creditors, who lend to people with scores between sub-prime and good.

Considerations

All medical collections fall off your credit report seven years after the original creditor reports the debt as delinquent. Consumers should check their credit report from all three major agencies before applying for new credit to see if they have a medical collections account. If a lender requires you to settle the bill, try to pay it off in full rather than negotiating for a partial payment -- debt settlement hurts a score about 45 to 65 points more than "paid as agreed," according to the Fair Isaac Corporation. Paying a collections account does not raise a score, but at least you can prevent a loss of points.

Tip

Avoid having a medical provider send your bill to a debt collector in whatever manner possible, such as setting up a payment plan. Bankrate suggests a payment plan of 10 percent of the bill each month. Hospitals rarely report to the credit rating agencies, while debt collectors always do. Also, you can dispute erroneous medical collections accounts on your record, such as when the medical provider reports debt to a collections agency before sending you a bill.

HIPAA

The Health Insurance Portability and Accountability Act protects a person's right to medical privacy. This, however, does not extend to unpaid bills. Unpaid bills can be reported to debt collectors because it counts as "payment activity."