Clark Howard

Getting bad medical debt off your credit report is about to get a lot easier

It’s no secret that health care is expensive — and there are plenty of statistics that show how the rising costs of health care have become a major financial burden on millions of Americans — including those who have insurance.

In fact, for years medical debt has been the number one reason people file for bankruptcy in the U.S. According to a 2016 study, about 20% of American adults had difficulty covering their medical bills — even with insurance coverage. On top of that, while many are forced to drain their savings to pay for an unexpected medical expense, many others simply don't have the cash to cover it and the bill ends up in collections.

One of the biggest concerns regarding medical debt has been the impact it has on an individual’s credit report and score — which can be devastating.

However, for the nearly 43 million Americans with unpaid medical bills, some relief is on the way!

Good news for people facing medical debt

Starting on September 15, the nation’s three big credit bureaus — Experian, Equifax and TransUnion — will implement a 180-day waiting period before an unpaid medical bill can be included, and show up, on a consumer’s credit reports.

The idea is to give people more time to straighten out any potential errors or disputes with both medical providers and insurance companies.

When you dispute a medical bill, it can typically take a while to get it straightened out — and when the bill isn’t paid by the due date —  you then face late payments, late payment fees and damage to your credit score (since the past-due bill is reported to the credit bureaus). This can then cause you even more damage — as a lower credit score can make it even more difficult, and more expensive, to borrow money, get a loan etc.

Read more: Understanding your credit reports and credit score

So the new 180-day delay is supposed to give consumers more time to get things sorted out — to have the charge dropped, pay the bill or get the insurance company to cover the cost.

In addition, all three bureaus will begin removing any medical debt from people’s credit reports/credit histories, if the bill is paid by the health insurance company.

Millions of consumers get blindsided by unexpected and extremely high medical bills — and the new changes are meant to prevent that situation from spiraling out of control and causing a person major long-term financial damage. By giving consumers a little more leeway, they can hopefully keep the bills under control, their credit in tact and their finances in good shape.

“The changes in medical debt reporting were designed to help people whose bills fell through the cracks between their health care providers and their insurance companies,” says Chi Chi Wu, a staff attorney for the National Consumer Law Center.

Read more: Take these 10 steps before you respond to a medical debt lawsuit

Who won’t benefit from the new changes?

After the extended 180-day waiting period, if a person still cannot afford to pay the bill, it will be reported to the credit bureaus as unpaid medical debt.

The changes also won’t help those who finally gave up on trying to sort things out with the insurance company and eventually paid the bill in full themselves.

What the changes won’t do is help people who simply can’t afford to pay their bills or who got fed up with waiting for their insurers and paid the bills themselves.

How one collections account can destroy your credit score

Your on-time payment history is the biggest factor that makes up your credit score — accounting for 35% of the total score. This is why you want to avoid any type of late payments or unpaid bills at all costs.

Just one collections account on your credit report can cause your score to drop between 50 and 100 points! And when that happens, repairing the damage can often take a long time — in some cases, several years.

So if you can take advantage of the new changes, do it! Make sure to go through your reports and look for any unpaid medical bills that you can get straightened out and paid off ASAP! That will have an immediate positive impact on your credit score.

How to improve your credit score

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