Why Do Medical Bills Affect Your Credit Scores?

Even if you've always managed debt responsibly in the past, future lenders or creditors may deny new applications you submit due to unpaid medical bills that appear on your credit report. Leaving medical bills unpaid has a derogatory effect on your credit scores -- rendering you a much higher lending risk for businesses and threatening your ability to qualify for other goods and services such as insurance, housing and utilities.

Credit Reporting

Not all medical debts impact your credit scores. If you or your insurance company pay off your medical debt while the account remains with the original health-care provider, the debt will not appear on your report and influence your score. This is true even if you submit payment late. Doctors, hospitals and other health-care service providers rarely, if ever, file direct reports with the credit bureaus.

If you do not pay your medical debt at all and the health-care provider turns your account over to a third-party agency for collection, however, the account will likely appear on your credit report. Unlike doctors and hospitals, collection agencies report delinquent accounts to the credit bureaus.

Considerations

Unlike other forms of delinquent debt, unpaid medical bills do not necessarily mean that an individual mismanages debt. Consumers cannot predict when or if they will suffer a medical emergency and, for those without insurance, debts incurred due to medical treatment can prove financially devastating.

Even if a doctor or hospital quotes a patient a cost estimate prior to rendering services, the quote is merely an estimate and may not accurately reflect the cost of treatment. Because consumers cannot always know what their medical care will cost before agreeing to treatment and the fact that treatment in certain situations is not optional, some lenders overlook medical collections -- or assign them lesser importance -- when evaluating applications.

Legal Relief

The Fair Credit Reporting Act allows all collection accounts, whether paid or unpaid, to remain on an individual's report for seven years. A bill introduced in July 2009 by former U.S. congresswoman Mary Jo Kilroy, the Medical Debt Relief Act, petitions to have medical collections removed from consumer credit reports within 30 days of being paid or settled. As of March 2011, the bill has passed in the House of Representatives but the Senate has yet to vote on the proposal.

Preventing Credit Damage

Preventing your health-care provider from sending your medical bills to a collection agency is the best way to protect your credit report and prevent credit damage. According to The New York Times, patients should talk to their health-care providers and ask for a discount or negotiate a payment plan. Doing so helps keep the cost of medical care manageable and out of collections.