Does medical debt affect your credit score?

One in three adults in the U.S. has medical debt, according to a White House fact sheet. In fact, medical debt is the largest source of debt in collections — more than auto loan, credit card and utility bill debt combined. Government data also shows that 11 million Americans have medical debt above $2,000, and 3 million Americans have more than $10,000 in unpaid medical bills.

That said, help is finally here if you’re struggling with medical debt and its potential impact on your credit score. Beginning in the first half of 2023, some medical debts will no longer be reported by the credit bureaus. You also have more time to begin payments toward medical debt before it is reported to the credit bureaus, giving you some breathing room to get your bills up to date.

If you're dealing with medical debts in collections, or if you’ve paid off debt in collections but are worried it will harm your credit, read on to learn about new changes and steps you can take to ditch medical debt for good.

Key insights

• In 2022, the three credit bureaus — Experian, Equifax and TransUnion — announced several reporting changes regarding medical debt that should lessen its impact on consumer credit scores.
• Credit reporting agencies will no longer report medical debts of less than $500 on credit reports starting in the first half of 2023.
• Paid-off medical debt that was in collections is no longer being reported as of July 1, 2022. Unpaid medical debts will not be reported to the credit bureaus for a full year, whereas the previous waiting period was just six months.

What is medical debt?

Medical debt results when an individual receives medical care but does not have the funds to pay for medical expenses in full. That medical debt often results from circumstances beyond a person’s control makes it unlike many other types of bills.

For example, no one makes the decision to have a heart attack that requires emergency surgery and results in tens of thousands of dollars in unexpected medical bills. Yet, often without any warning, you can easily be burdened with considerable debts you cannot afford to repay.

Be aware that having health insurance doesn't necessarily protect against medical debt. A 2022 survey by the group Affordable Health Insurance, which provides health insurance education and guidance, showed that a nearly equal percentage of insured and uninsured Americans carry medical debt — 59% of uninsured respondents reported having medical debt, compared to 56% of respondents with health insurance.

Can medical bills affect your credit?

Medical care itself won't negatively impact your credit score — even if you end up with a considerable amount in medical bills. Only bills that go unpaid have the potential to affect your credit, and only after enough time has passed.

Fortunately, there have been recent changes to lessen the effect of medical debt on your credit. For example, medical debt in collections that was ultimately paid off no longer appears on credit reports as of July 1, 2022.

Also, sometime during the first half of 2023, Equifax, Experian and TransUnion will no longer report any medical debt in collections under $500 on credit reports.

The three credit bureaus also now have a grace period of one year before any new medical debt is reported, said Howard Dvorkin, a certified public accountant and chairman of Debt.com. This is an increase over the six-month waiting period that applied before and is good news for people who have unpaid medical bills.

Dvorkin adds that you may get some relief on the credit score side of the equation, since two major credit scoring companies have announced changes to how they factor medical debt into scores.

"FICO is downplaying medical debt in its calculations, and VantageScore is getting rid of it entirely irrespective of the amount owed or age of the debt," he said.

According to VantageScore, this change was made due to the fact that medical bills in collections "have little predictive value when it comes to a consumer’s creditworthiness." In other words, if someone racks up medical debt due to an illness beyond their control, it doesn't necessarily mean they won't keep up with other bills like a mortgage or an auto loan.

How to get rid of medical debt

With medical care sometimes costing exorbitant amounts in the U.S. health care system, racking up medical debt is a breeze. However, ditching medical debt is not always easy, particularly if you end up with more medical bills than you can reasonably repay.

Dvorkin, from Debt.com, says the worst thing someone with medical debt can do is procrastinate. After all, waiting to take action means getting closer to the time when unpaid medical bills can be reported to the credit bureaus.

Consider the following steps to pay down medical debt for good:

1. Negotiate with your health care provider

This strategy requires some cash, but it can definitely work. If you have medical debt that's just above what you can afford to pay, call the hospital or medical provider and ask if it will accept a lower amount in cash.

It may quickly say no, or you may find that you'll get a discount for immediate payment. This can save you money on medical bills while also helping you get out of medical debt on a faster timeline.

2. Set up a payment plan

Dvorkin says you can also call your medical provider to ask about a payment plan. "This is a very common practice, since the medical provider wants to get paid, and they don’t want the bill to be sent into collections," he said.

Some medical providers may be more willing to enter a payment plan agreement than others, but you'll never know unless you ask.

3. Request financial assistance

Many hospitals offer charity care that essentially forgives some medical debts if you truly cannot afford to pay them off. However, this kind of assistance does not happen automatically, so you have to request it.

Who qualifies for charity care? According to the Kaiser Family Foundation, hospitals have different processes when it comes to determining eligibility for charity care, but many offer free or discounted medical care for individuals whose income does not exceed 200% to 400% of the federal poverty level.

4. Consider debt consolidation

Debt consolidation can be a solution for unpaid medical bills, particularly if you’re saddled with an amount you can afford to repay over several years. 

With a debt consolidation loan, you could pay off your medical debt with a fixed interest rate, a fixed monthly payment and a set repayment schedule.

5. Declare bankruptcy

As a last resort, many Americans opt to declare bankruptcy because of mounting medical bills. This can be a final option if you have so much medical debt that you cannot afford to pay it off in your lifetime. 

While bankruptcy can have a profound impact on your credit and stay on your credit report for up to 10 years, this dramatic action can erase medical debt for good and help you get a fresh start with your finances.

Bottom line

If you have medical debt and you're worried about how it will affect your credit score, know that recent reporting changes will help. Starting in 2023, Experian, Equifax and TransUnion will no longer report medical debts below $500. Medical debt in collections that was ultimately paid off will no longer appear on credit reports as of July 1, 2022. And you now have a full year before unpaid medical debts are reported, which is up from the previous waiting period of six months.

That said, these changes won't make medical debt disappear, and they will not prevent all consumers from seeing damage to their credit scores. If you want to avoid medical debt wrecking your credit, you should try to be as proactive as you can about your bills. This means reaching out to health care providers to strike a deal, getting on a payment plan or considering debt consolidation so you can pay off medical bills over time.