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How Medical Debt Can Lower Your Credit Score, And What You Can Do About It

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If you’re unable to pay for medical bills, or if you worry about what would happen to your financial well-being should you get in an accident, you’re not alone. The U.S. Consumer Financial Protection Bureau found medical bills to be the most common cause of unpaid bills sent to collection agencies. In fact, medical-related issues account for 66.5 percent of all bankruptcies. Left unpaid, medical bills send out a shockwave of financial devastation, and your credit score becomes just one of the casualties.

Good credit takes years to develop. Though a credit score is “just a number,” it determines which loans consumers can (or can’t) qualify for and how low (or high) their interest rates might be. Over the course of a lifetime, one determined interest rate—for say, a mortgage—based on a credit score gone bad, can cost an individual tens of thousands of dollars in additional interest payments.

When it comes to an unexpected accident and you’re left injured, your credit score likely isn’t at the top of your list of concerns. But it needs to be. If your car was completely side-swiped at an intersection, for instance, and you’re left injured, your main focus is likely to 1. seek the care you need and recover, 2. hold the liable party responsible and 3. pay off your medical bills from the ER trip and your follow-up doctors appointments. Even though this accident wasn’t your fault and you have medical insurance—your sky-high medical bills, if left unpaid, can be sold to a collection agency. The collection agency will report this to credit bureaus and, in addition to fielding the constant calls from debt collectors, you’ll have to face-up to your slowly sinking credit score, which not only threatens the credit you’ve taken years to build but your future credit as well.

To be clear, medical bills and your personal medical history are not reported to credit agencies. It’s when these medical debts go unpaid and when they’re turned over to a collection agency that your credit score takes a hit. In fact, just one collection account can cause a good credit score to drop by as much as 50 or 100 points.

I’ve written about this before, but the cost of medical care has skyrocketed. Few Americans have adequate savings in place to self-fund medical costs, especially unexpected bills from incidents that weren’t their fault. Emergency departments can’t seem to agree on prices, insurance companies are soaking up profits, and even the pricey and self-claimed “best of the best” health insurance options still leave Americans vulnerable. 

To protect your credit score from unpaid medical bills, here are some measures you can take:

1. Understand Your MedPay

MedPay, otherwise known as medical payments coverage, isn’t healthcare coverage at all. Instead, it’s part of your car insurance. MedPay is considered no-fault coverage, and it can reimburse an injured policyholder, his or her family, or anyone injured in the covered vehicle for “reasonable and necessary” medical expenses incurred as the result of a car accident. 

2. Ask for a Payment Plan From Your Provider

Doctors and hospitals aren’t reporting your medical debt to credit bureaus. The collection agency does. If you can keep your medical bills out of collection, you have a better shot at preserving your credit. One way of doing this is to ask about monthly payment plans. Providers who see you’re making timely payments may work with you and keep your account out of collections.

Go through the process of asking for a reduction in the amount outstanding. There is often a somewhat tedious application process, but it is well worth it. This reduction combined with a payment plan can help preserve your credit.

Medical billing is complex, so staying in touch with your provider and insurance company’s billing department regularly will give you a chance to understand both exactly what you owe and how your payments are making progress against your debt. There’s no law or requirement saying providers have to offer this as an option, but since medical debts in collections can remain on your credit report for seven years, it’s worth asking about.

3. Hire a Trial Attorney Who Specializes in Personal Injury

I’m already at work on a separate article about why you should hire a personal injury lawyer instead of attempting to manage your own claim (stay tuned), but there are many reasons why you should hire a lawyer instead of handling a claim on your own. For one, insurance providers seem to pay more attention when there’s a lawyer in the room—and sometimes that’s all you need, is for someone to be paying attention to your individual case. Attorneys can also work with providers to preserve your credit, keeping your medical bills out of collections and keeping your hard-earned credit intact.

4. Make Use of Medical Funding

Non-recourse medical funding allows you to cover the cost of your medical bills and additional non-medical expenses like rent, utility bills, and car payments, while your case works its way through the court system—without crippling your financial record. Non-recourse means you only pay the money back if and when you win or settle your case.

If you find yourself in medical debt, don’t let your credit score take a hit. During the claim process, there are plenty of ways to continue protecting the credit you’ve taken so long to build. Remember, it’s more than “just a number,” and like you, you need it to be healthy and well after the accident.

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