Medical debt is one of the most difficult headaches for Americans to deal with. It can cause major financial problems, and it can have a serious impact on your credit score.
Luckily, lenders and credit reporting bureaus are taking this seriously and have changed how medical debt is used on credit reports. The new medical debt rules are designed to help alleviate some of the burden of medical bills. They’ll make it easier for people to get relief from collections agencies and improve the chances that you’ll be able to pay off your debts quickly.
The medical debt changes you need to know
Experian, Equifax, and TransUnion – the three major credit reporting bureaus lenders use to determine creditworthiness – have all agreed to remove any medical-related debt under $500 from credit reports. While this is a step in the right direction, there are some caveats you should know:
- Not all medical debt is eligible – To be considered eligible, the medical debt must be directly from a collections agency or medical facility. Debt paid with a credit card or a loan will not qualify.
- Paid-off medical debt counts – If you’ve had outstanding medical debt on your credit report (which is different from your score. If you’re confused, here’s a great primer on credit scores vs. credit reports) that you’ve paid off, this is eligible for removal, too. Removal should happen automatically for paid-off medical debt of any amount, but if it’s been a few months, you may want to file a dispute with the reporting bureau to have it reviewed and removed.
- If your debt is over $500, you’re still in luck – While only medical-related debts totaling $500 or less are eligible to be removed, that doesn’t mean your credit score is doomed because of a $10,000 hospital bill. The bureaus have all agreed to delay reporting any medical-related delinquencies or medical-related debts turned over to collections agencies for one year.
Okay, my medical debt is removed. Now what?
If you’ve had medical debts removed from your credit report, you should see a bump in your credit score. However, you shouldn’t stop there; take this time to focus on getting your financial health back on track.
- Understand the other factors affecting your credit score – Your credit report and score aren’t just for loans and credit cards. Insurance agencies, utility companies, cell phone data providers, and even some employers will run credit checks, so you must get your score as high as possible. Understand the different factors that could and could not affect your credit, such as:
- If adding an authorized user affects your credit score
- What types of debt go on your credit report
- Whether the balance you carry on your credit cards is knocking down your score
- How quickly you can get a late payment erased from your credit report
and so on.
- Make saving money a higher priority – Sometimes it’s easier said than done, especially if you’re living paycheck to paycheck, but setting aside money in an emergency savings account could prevent you from ever worrying about medical debt again. Even setting aside $5 a check can go a long way toward securing your financial health and make it easier to accrue compound interest, making your money earn even more without any effort.
- Re-evaluate your health insurance – Health insurance is costly for many Americans, and sky-high deductibles can make it feel like you’ll never get ahead. Luckily, there are options out there, and it’s vital you revisit your eligibility for different plans every year. Some states offer subsidies and health insurance marketplaces for low-income or self-employed residents, making healthcare more affordable. Also, consider weighing the costs of a high-deductible/low-premium plan vs. a plan with higher monthly costs but lower deductibles. You might save money in the long run on wellness checks, outpatient visits, and prescription costs simply by moving to a higher-tier plan.
The bottom line
Removing medical debt from your credit score is a big win for your financial health and can help improve your overall credit score. However, it’s essential to remember that other factors could affect your score, so don’t stop there – work to improve all aspects of your financial picture to achieve the best possible outcome.