Can Medical Bills Go Against a Credit Report?

Credit scores are numerical estimations of a person's likelihood of paying off a debt in a timely manner. The three main credit agencies are Equifax, Experian and TransUnion. They adjust the credit scores of consumers by considering past accounts' payment histories, proportion of available credit to current accounts and personal income, and that of the consumer's spouse.

Types of Debt

The two main types of debt are secured and unsecured. Secured debt gives the lender claim to property that can be seized if the debt is not repaid. Unsecured debt does not give the lender this power, so settling a delinquent account can be more difficult, often involving legal action. For this reason, unsecured debt tends to be more expensive, in terms of interest paid, and more difficult to obtain, in terms of credit score requirement.

Medical Debt

Because medical treatment is a service rendered, rather than a piece of property purchased, any unpaid debt is unsecured. There is nothing that can be repossessed. The granting of credit is typically based on credit rating, however it is illegal to refuse medical care in the U.S. where it may be a matter of life or death, even if a patient cannot pay. While this situation does save lives, it can also cause collection problems for medical facilities and credit problems for patients.

Credit Impact

There is little choice to be made when faced with serious medical problems, but to assent to treatment. However, this does not change the fact that the patient or parents of minor patients is ultimately responsible for payment of the debt. Serious medical problems can also negatively impact the earning power of individuals, which can further reduce the ability to pay off debts. Because of this, medical bills that are unpaid or paid late have the same impact on credit score as other unsecured debt. Some creditors, especially those who finance major purchases, may choose to overlook such debt, especially if a period of late payment has since been addressed and the borrower is deemed unlikely to die or become crippled by a chronic condition. Consult a professional before making any major financial decisions.

Solutions

Some measures can be taken to mitigate the damage done by medical debt. While medical establishments are generally for-profit ventures, they are sometimes sympathetic to the financial problems of patients. Many decline to report delinquent accounts to reporting agencies as long as regular payments are made to the account, even if the payments are small. Bankruptcy can effectively "reset" a consumer's credit. This may not be immediate and the process takes time. However, few bankruptcy courts refuse relief to people who face serious medical debt. Medical expenses exceeding 7.5 percent of annual income are also tax deductible, providing some offset to the burden.