A FICO score is a reflection of what's in your credit report. FICO scores can be adversely impacted by judgments, late payments on credit cards and outstanding medical bills. If you are looking to find a way to increase your FICO score, paying off your medical bills could be one way to do it.
FICO Score Definition
A FICO score isn't just one score: it's usually a combination of three scores from the three major credit bureaus: Experian, TransUnion and Equifax. Your FICO score is the score that most lenders look at when determining whether to extend credit to you or not. They also use the score to calculate your interest rate should you be approved for credit. Your FICO score is a snapshot of what is in your credit file and can range from a low of 300 to a high of 800.
How Medical Bills Affect your Credit
It's not uncommon for medical bills to run into hundreds of thousands of dollars. Unfortunately for the consumer, it can often be impossible to come up with a reasonable payment plan to reduce the debt. What often happens is that the bill is turned over to a collection agency; this puts a black mark on your credit report. Even if you subsequently pay the bill, a medical bill can remain on your report for up to 7 years.
How Medical Bills Affect Your FICO Score
In most cases, although medical bills can have overall adverse consequences on your credit profile, they may not directly affect your FICO score. One of the major factors in the FICO score calculation is your revolving-credit utilization ratio and outstanding medical bills are not factored into that ratio. However, another factor in the FICO score is how many accounts you have in collection and your history of late payments. Unpaid medical bills could adversely affect that portion of your score.
Medical Bills on Your Credit Report
If you have unpaid medical bills on your credit report, it's possible that paying them off could increase your FICO score by a small amount. If you pay your bill in full, your payment will be reflected on your credit report but the collections notice will remain on the account for 7 years. If you want the item removed, you could dispute the hospital bill as a clerical error or you could dispute the charge with the credit reporting agency. If the charge is legitimate, you may not be able to get it removed from your report.
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