Medical Debt on Your US Credit History: What Shows Up on the Report and What Does Not

How medical debt ends up on a credit report

Hospitals and clinics usually do not send anything to the credit bureaus themselves. The process is different. You received care, a bill came, and you did not pay it — for example, because you were waiting for insurance to pay, or the letter went to an old address. A few months later, the hospital passes or sells the debt to a collection agency. And it is the collector who may report the debt to the bureaus. Then an entry appears on the report — a collection.

For immigrants this story is especially common. There is no insurance or it is temporary, addresses change, letters come in English and look like advertising. And then a person applies for a car loan and finds out their report has a debt for an ER visit from two years ago. What a collection is and how it differs from a charge-off — in the article charge-off vs collection.

Which medical debts the bureaus do not show

A few years ago, Experian, Equifax and TransUnion agreed on their own to soften the rules for medical debt. Today three important limits apply:

• Paid medical collections are removed from the report. If you paid off such a debt and it is still there, that is an error.
• Medical debts under $500 do not show on the report at all.
• A one-year wait. Unpaid medical debt can appear on the report no earlier than a year after it was passed to collectors. This time is given to sort things out with insurance.

In addition, some states, including California, have their own even stricter limits on reporting medical debt to the bureaus. And newer versions of scoring models — for example, VantageScore and newer versions of FICO — treat medical collections more softly than older ones. But banks often use older versions of FICO, so a medical collection for a large amount can still get in the way seriously.

How a medical collection hurts

A collection is a negative item, and any bank sees it on the report. A fresh debt for a large amount is especially dangerous: it can cause a denial for a car loan, a mortgage or a rental. Even if the score itself did not drop much, a mortgage underwriter usually looks at every negative entry separately.

How long negative items affect your history and when their weight decreases — in the article how much negative items affect your credit history. Whether to pay a collector and what it changes — we cover separately.

Why immigrants end up with medical debt more often

American healthcare is set up in an unfamiliar way. One ER visit can turn into three or four separate bills: from the hospital, from the doctor, from the lab and from the ambulance. Each comes separately, sometimes months apart. A person pays one bill and thinks the matter is closed, while the others go to collectors.

The second reason is insurance. In the first years in the US, many people have none, or it is temporary with a high deductible. The insurer may refuse to pay because of a wrong service code or because the clinic turned out to be out of network. While the back-and-forth goes on, the bill keeps hanging on the person.

The third is moving and language. Letters come to an old address, in English, with confusing abbreviations. Many people mistake them for advertising and throw them away. As a result, a person learns about the debt only when a bank denies them credit.

• Several bills for one visit from different organizations
• An insurance denial because of a code error or an out-of-network clinic
• Letters to an old address or in English that are easy to miss
• An ambulance you did not call, but the bill came in your name

Medical debt and major applications

How much a medical collection gets in the way depends on where you apply. A credit card with a small limit may go through even with such a debt on the report. But with a mortgage, the underwriter almost always asks about every negative entry and may ask for a written explanation or proof of payment.

So it is better to deal with your report in advance, a few months before a major application. Then there is time to check the entries and not lose a good rate because of a debt that should not be on the report at all.

Where errors hide most often

Medical debt is one of the most confusing topics in credit reports. A bill passes through the clinic, the insurer, sometimes several collectors. At every step something can go wrong. Here is what we see most often:

What to do if there is medical debt on your report

First — do not panic and do not rush to pay on the first call. You first need to understand what exactly is on the report: who owns the debt, what the amount is, what the date of first delinquency is, whether it shows in all bureaus. Sometimes it turns out the entry should not be on the report at all — for example, the debt is paid or it is under $500.

Second — look at the whole picture. A medical collection is rarely the only problem. Next to it there may be late payments on cards, extra inquiries or high utilization. Decisions are made based on the whole report. The full list of negative entries — in the article which entries count as negative.

How Excalibur works with medical debt

During the free review, an Excalibur Credit Solutions manager matches medical entries in all three bureaus: amounts, dates, the owner of the debt, payment status. If an entry is inaccurate, outdated or unverified, after payment our technical team works with the bureaus. Timing depends on the bureaus' responses, and results are individual. Prices are on the services page.