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How Will Unpaid Medical Bills Hurt Credit?


Don't use that post-surgery fog as an excuse to ignore medical bills, even if you're still contesting them with your doctor or health insurer. Otherwise, your credit score will need to heal, too.

Medical debt is the most common type of collection account, representing nearly half of all reported collections. Almost 1 in 6 credit reports contain a medical debt collection, according to the Federal Reserve. And about 2 in 5 Americans reported a lower credit rating last year due to unpaid medical bills.

The damage a medical collections account can do to your credit can be devastating, making it harder to get loans at low interest rates. A new proposed bill would give consumers more time to resolve medical bills before they show up as collection items. But many consumer advocates want these types of collections excluded altogether from credit reports, saying they don't reflect a person's credit risk.

Is it fair?

Whether medical collections should be included in credit reports is an ongoing debate. FICO stands behind the predictive power of large collections, even though the company has not tested medical collections by themselves. VantageScore also has not specifically tested how predictive medical collections are.

"We philosophically don't believe in throwing out data arbitrarily without knowing its value," says Sprauve. "We have spent time looking at collections in general, not specifically medical, and they are predictive."

But some consumer advocates say unpaid medical bills are an unreliable predictor of risk. Some credit evaluators surveyed by the Federal Reserve in 2004 said they remove medical debt collections when they consider an applicant because they often represent disputes with an insurer and aren't a good indicator of loan repayment.

"People are making calculated decisions when taking on a car loan or credit card," says Amy Traub, senior policy analyst at think tank Demos. "With medical debt, it's your life that's at risk or your child's life. It's a catastrophic event."