What makes medical bills different from other debt?

Last month, we discussed the effects on medical debt on the finances of people in Georgia and throughout the country. Specifically, we detailed various studies and surveys in that earlier bankruptcy blog post, reporting that more than 40 percent of working-age Americans, or 72 million people, have significant medical debt.

Most people probably consider medical bills to be similar to other common forms of debt, such as credit cards and car loans. However, it is important to be aware of the differences between medical and other debts in order to ensure that your medical bills do not have an unexpected negative effect on your financial situation or credit score.

The most significant difference between medical and other consumer debt is that the former is generally not reported to credit reporting agencies, at least initially. However, this does not mean that it won’t have a negative impact on your credit score. If you have unpaid medical bills, the hospital or medical center will probably spend a few months trying to collect your payment via bills, statements and past due notices.

If those attempts are unsuccessful, the medical service provider will most likely send your debt to a debt collection agency. It is then that the credit reporting agencies will be made aware of your debt.

Unfortunately, this is where medical bills are like most other forms of debt. After appearing on your credit report, unpaid medical debt will remain there for seven years, during which time your credit score will suffer.

There are two additional details to note here. First, many medical collections are the result of billing or insurance errors, and it is therefore easy for people who don’t actually have any medical debt to be surprised with a call from a collection agency. Second, medical debt often affects people with no other significant debts and a good credit score. This means that being sent to collection, whether erroneously or not, can cause significant financial harm.

Source: Business Insider, “The Truth About How Medical Debt Really Impacts Your Credit Score,” John Ulzheimer, June 25, 2012