Medical debt affects the credit of many Americans. In fact, a study done by the Consumer Financial Protection Bureau (CFPB) in 2014 revealed that 52 percent of all credit report debt came from medical expenses. The balance averages out to $579 per person, but some have much more medical debt. The study also showed that one out of every five credit reports studied had at least one debt that had been turned over to a collection agency. This means that 43 million Americans have a debt that is in collections. Out of those 43 million, more than one third (15 million) had only medical debts.
While FICO has released FICO 9, a new method of determining a person’s credit score that lightens the weight of medical debt, it is not mandatory. Some lenders, in fact, have their own credit scoring methods they use. This means that for individuals with medical debts in collections, those debts will continue to affect their credit scores for the foreseeable future.
The key to protecting their credit is for these individuals to prevent their medical bills from being sent to a collections agency. This requires understanding how their insurance pays out, remembering to make all payments when they are due, and, when necessary, making payment arrangements with the healthcare provider. If a debt has gone to collections, individuals can often negotiate a smaller payoff that will clear the mark off their credit report.
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