Is medical debt going to affect my credit score?

January 27th, 2010 |

Medical debt is one of the common debts that many Americans are incurring in these hard times. There are many misconceptions about delinquent medical bills in particular with respect to credit score. As many people are falling delinquent on bills these days due to higher unemployment rate prevailing across the nation, I come across many people asking about how will the medical debt is going to impact your credit score. Therefore I decide to important facts about medical debt.

First of all medical bills are not reported to credit reporting agencies unless you fall delinquent. After you being delinquent on medical bills, the hospitals or doctors hand over your debt to collection agencies as they can’t recover the amount from you since long time generally for 6 months. Such bills will normally show up in credit report as a collection account with type mentioned as medical. With this action, needless to mention, your credit score will be affected. The extent of its impact will depend on your credit history and to the amount of your medical debt.

Many ask how long does the delinquent debt will stay on your credit report. As medical debt is treated similar to other bad debt, it is treated similar to bad debt. Meaning it will be on your credit report for 7 years. The statue of limitations is similar to those of written contracts. That means the creditor can attempt to collect from the borrower as per the guidelines of written contract from the date of its recording.

The unpaid medical bills similar to other debt will affect the credit score and in turn affects your future borrowing capacity. For example, if you are looking for a mortgage, then it will impact the chances of mortgage application being accepted by the lenders as your credit score will be dropped with delinquent medical debt reported to credit rating agencies once your account is in collection. The impact will be much more when you have credit score lower than minimum required score. But, one thing to be mentioned, your medical debt will not go into collections when it is below $400, as the lenders wont bother about it. As long as you maintain credit score above 580, small debt will not affect much your chances of getting credit.

Another affect of medical debt is on your debt to income ratio. The impact will be much when you have huge medical debt unpaid, which is considered as large bad debt. Its impact will be known when you apply for the mortgage because the debt to income ratio is calculated when processing your mortgage application. In order to accept your mortgage application you need to pay off the medical debt and submit the proof of payment to mortgage lenders. If you can’t do this, then certainly you won’t be able to get the mortgage. At least, you must pay off the debt with monthly instalments as part of your recurring debt expenses.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice.

Be Sociable, Share!