How Credit Reporting for Unpaid Medical Bills is Changing

It’s not always easy to financially plan for a major emergency, which is why so many people incur medical debt. And taking too long to pay that debt can have a big impact on your credit.

Medical debt is a little trickier than regular debt, and for that reason, it has become an issue for consumers. Doctors, hospitals, and other medical facilities don’t report debt directly to the credit bureaus. Instead, they send unpaid debt to collection agencies, and these collection agencies report the debt themselves. Obviously, this can be an unpleasant surprise. But the good news is that this problematic process might be changing.

You Now Have a Six-Month Waiting Period

“Medical bills used to be treated the same way as any other unsecured debt, like credit cards. You were late, it got reported to credit agencies and showed up on your credit report,” says Bev O’Shea, a consumer credit expert at NerdWallet. “Today, the law gives people with medical bills a lot more time to look over bills, negotiate with health-care providers, see what insurers will pay, or set up a payment program. It’s simply much more fair and friendly for consumers.”

Last year, the three major credit bureaus–Experian, Equifax and TransUnion–also instituted a change that requires a 180-day waiting period before medical debt gets added to consumer credit reports. This is an important change, because medical billing companies have a habit of just sending bills directly to collections, sometimes even before consumers have a chance to review them. With the new rules, you’ll have about six months to make payments or make arrangements with your insurance carrier.

180-day Waiting Period

If you’re having trouble making payments during that time, the best course of action is to talk to the creditor or collection agency directly. Most of them are willing to work out some kind of repayment schedule or medical bill assistance program. To learn more, here’s an important guide from Clearpoint that discusses how to negotiate medical debt. It’s easier than you might think.

“[The new rule] is huge for consumers, because reported late payments can weigh down credit scores,” O’Shea says. “But the rules are not retroactive. If you already have medical debt or damage from it, the new rules for reporting it won’t help you with past debt.”

This particular change may not be much help to those who have already incurred debt. However, credit scoring firm FICO has created a new scoring model to address this problem, too.

Medical Bills in Collections Disappear When Paid in Full

Not long ago, FICO introduced a new scoring model, FICO® Score 9, that included significant changes to the way medical debt is factored into calculations. Now, when you pay your medical bill in full, it won’t show up on your credit report at all. So paying your medical bill–even after it’s sent to collections–ensures it won’t be included on your credit report, according to FICO. They explain:

“FICO® Score 9 disregards all paid collection accounts…Keep in mind that any missed payments associated with the original credit account before it was sent to the collection agency will still be considered by FICO® Score 9. It is only the third-party collection account that is ignored, if and when that collection account is paid.”

In other words, as long as your payments to the collections agency are on time, you should have the collections record totally removed.

Second, the new FICO score differentiates between unpaid medical debt and unpaid non-medical debt. In short, FICO says unpaid medical debt should have less of an impact on your overall credit.

If you can’t afford your bill, even after the six-month waiting period, you might try negotiating. Some consumers have luck haggling their medical bills with the original creditor or the collections agency. If you agree on a new amount, make sure to get the details in writing. O’Shea says that medical debts that are satisfied, whether they were settled or repaid, are disregarded by the new scoring model. This is much different than the reporting rules for non-medical debt that you settle.

She adds that, overall, these changes are positive, but the system still isn’t perfect. For example, there’s no guarantee that the three major credit bureaus will use the new formula, and O’Shea says FICO 8 is more widespread.

“So it’s crucial to check your explanation of benefits carefully and to make sure you actually receive bills that correspond with the information you see there,” she says. “It’s smart, and easy, to find out what’s in your credit report. And it’s worth checking in to keep your credit healthy.”

O’Shea adds: “A surprising number of consumers find surprises, such as an unpaid collections account, they knew nothing about.” As we’ve pointed out before, you can (and should) access a free copy of your credit report from each of the three bureaus every year through the FTC-backed website www.annualcreditreport.com. It’s always worth looking and double checking.

Kristin Wong writes and makes videos about all things money. You can find her writing at Lifehacker, NBCNews.com, and on her own personal finance blog, Brokepedia.

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9 responses to “How Credit Reporting for Unpaid Medical Bills is Changing”

  • So I know some of these medical bills are over 10yrs old, I worked for a company who went bankrupt right before my 1st surgery and they didn’t pay our medical insurance. About 6 months later I received my first collection right after filling my bankruptcy in 2007, then a few years later I ended up in the hospital unexpected filed for the hospital’s bridge assistance to find out it was up to the doctor’s if they want to accept the bridge assistance to find out many months later I have to pay it, now 10yrs later I m getting garnished and I didn’t even receive anything to let me know this was what they were going to do. How can this be ok so many years later?

    • Thomas Nitzsche

      Hi Shawna, Even though the debt is old, they may have been awarded a default judgment if you didn’t receive the court summons or failed to appear. At this point I would seek legal advice to see what your rights and options are. If you are not sure who to contact, you can get a referral from your local bar association, or legal aid if you are income qualified.

    • Shawna,
      I would check your state’s statute of limitations. It may be that the SOL has expired and you don’t have to pay that anwyway. Also, If the hospital/Dr. office sold the debt to the collection agency, you do not have a contract with them. The debt is with the hospital NOT the collection agency. I would demand the collection agency send you proof that you owe them the debt. For example, do they have your signature on file? I can guarantee they do not have it. If they do, it will be from the hospital/Dr. office and NOT from the coll. agency.

  • valerie rovins

    These medical bills are serious and life changing. I went to a private hospital to have an MRI done in Bridgeport CT. They charged my insurance 10,000 dollars. I have never paid out of pocket since I pay a co-pay. Not until this hospital visit. They are billing me 4,000.00. I can not pay this much. I can only pay 500.00 and not a cent more. I will also need to pay that off. The private hospital mentality is frightening. I know everyone who is going through this wants to fight this. We need a way to unify and do this together. This feels like a social prank gone very bad. Let us find a way to fight this together.

    Valerie Rovins

    • I agree!!! Their prices are insane!! Who can pay that? Doctor follow up $318!!! For 5 min visit to go over routine blood work… How in the world is this ok??? I’m not paying that… This is offensive

  • Neeraj Mittal

    One pathology lab never sent me the medical bill. I directly received bill of $190 from collection agency. 180 days have not yet passed after the date of service. I came to know that credit bureau does not report in the credit history if the bill is paid within 180 days. Just want to know if I pay directly to the collection agency before 180 days period, will that be reported in the credit report.

  • WHAT’A CROCK. THE COLLECTION AGENCY SIMPLY WAITS FOR 5 YEARS (WAY BEYOND THE 180 DAYS), THEN SLAMS IT ON YOUR CREDIT REPORT. BY THEN, YOU HAVE NO IDEA WHAT THE MEDICAL BILL IS FOR AND THE 3 BUREAUS COULDN’T BE MORE HAPPY. AND JUST TRY TO GET AN ITEMIZED STATEMENT FROM A HOSPITAL AFTER THEY HAVE GIVEN THE ACCOUNT TO A COLLECTION AGENCY.

  • Carleen

    Hospital reported me to credit bureau 3 years later for medical bills. Is there a time limit legally that the hospitals have to report to the credit bureau in a timely fashion and not put that on my credit barrel three years later from the time of service that that Bill derived from? thank you!

  • Kathy Hickman

    I was looking at my credit report and for the last year I have had 100% on time payments to my new creditors that I have open accounts with trying to rebuild my credit with. I got into my credit karma account this morning to find a account that was bought out by company. They have had this account for awhile now and now they are showing that I have a late payment with them. I have never set up anything with them as far as scheduling a payment plan of any kind. how do I go about getting this off my credit or can I even do that?

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