Your credit report plays a crucial role in your financial well-being. Credit can impact what loans and other financial products are available to you. It can also affect what apartments you can rent, what your insurance premiums are, and possibly even where you work. To keep your financial health in good shape, it is a wise idea to know what your credit report consists of and how to keep your credit score high enough to access the opportunities you want.
The American healthcare system can be difficult to navigate at times. Understanding how medical bills are handled and whether they are included on credit reports can be challenging. Typically, medical bills affect your credit scores only after they have gone unpaid for a long time. However, it is a good idea to know how to remove medical bills from your credit report and keep up with the recent changes made to how unpaid medical bills are reported to the credit bureaus.
How Your Credit Report Is Compiled
Consumer credit reports are essential to the proper functioning of the American economy and the lending industry. Credit reports make it possible for lenders to properly measure the risk that is involved when working with borrowers. As a consumer, it is important to understand how your credit reports and scores work and what information is included on them so that you can keep track of your creditworthiness and obtain the financial products you need.
There are three major credit bureaus – Experian, TransUnion, and Equifax – that compile credit reports but the information included is essentially the same. There is usually only ever any variance because some creditors might report to one or two credit bureaus and not another. However, all credit bureaus will include the following categories of information when compiling credit reports:
Some personal details are contained within your credit report to connect you to it. This identifying information is not used to determine your credit risk so it won’t be factored into the calculation of your credit score. Details included are your full name, date of birth, Social Security number, address, phone number, and employment information.
The most significant portion of your report will be taken up by information about credit accounts in your name. Details of your credit accounts will include the type of account (credit cards, student loans, mortgage loans, cash advances available online, auto loans, etc.), the date you opened the account, the credit limit or loan amount, your account balance, and payment history.
This information takes up a majority of your credit score’s calculation. In particular, your payment history on all your various credit accounts makes up for 35% of your total score’s calculation!
When applying for new credit of any kind, you are authorizing that lender or credit card issuer to pull a copy of your credit report to determine whether they will approve your application. Each time this happens, a new credit inquiry will show up on your credit report.
Hard inquiries are the only type of credit inquiries that impact your credit score while soft inquiries are a result of checking your own credit or pre-approval offers. A hard inquiry will remain on your credit report for up to two years, and too many of them within a short period of time can damage your score.
When a debt goes unpaid for a certain amount of time, from credit card debt and rent to utility payments and medical bills, it will be passed off to a debt collection agency. Once a collection account has been created in your name, the account will appear on your credit report as a derogatory mark that could bring your credit score down.
Collection accounts can stay on your credit report for up to seven years but in most recent credit scoring models, collection accounts that have been paid off will not be factored into your credit score.
Credit reporting agencies will also glean their own information when necessary. Public records that are relevant to your credit risk will be pulled from state and county courts. These records could be foreclosures, repossessions, or bankruptcy filings.
Do Medical Bills Show Up On Credit Reports?
Up until now, it has been the case that medical bills are unlikely to show up on your credit reports unless they have gone unpaid for a long. Most often unpaid medical bills will appear on your credit report when they have officially been sent to collections, similarly to utility bills and late rent payments.
If you are paying your doctor’s bill or hospital bill on time, it will not be reported to the credit bureaus. Until recent changes, a medical provider would typically wait to send an unpaid medical bill to a debt collection agency at least 90 days with many waiting even longer at 180 days. But recent changes have increased the wait time even longer to protect consumers in the reporting of medical debts.
Recent Changes To How Medical Debt Affects Your Credit
Recently there were new updates announced regarding changes to how medical debt will be reported to the credit bureaus. These changes will lessen the impact of medical debt on your credit report and lengthen the amount of time debt needs to go unpaid before it can be reported.
Paid Medical Debt
As of July 2022, all paid medical debt was erased from consumers’ credit reports. If there is any paid medical bill that has remained on your credit report, you should be able to contact the credit bureau to have it removed from your credit report.
Unpaid Medical Debt
As of July 2022, there is a year-long waiting period before providers can report unpaid medical debt to the U.S. credit bureaus. Additionally, starting on January 1st, 2023 you can expect to have any unpaid medical bill under $500 no longer appear on your credit reports.
How To Remove Medical Bills From Your Credit Report
If there is paid medical debt still on your credit reports or unpaid medical debt under $500, you have the right to dispute the information to the credit bureau who produced the report.
To do this, these are the steps you can follow:
- Gather necessary evidence to prove that the bill has been paid or that the debt is under the threshold of time or amount to be put on your credit report. This could be payment records from the hospital or proof from your health insurance company that the bill was paid, or whatever else might be helpful.
- Contact the credit bureau you wish to file the dispute with. Make your dispute and show your evidence. Make sure to check all of your credit reports so you can dispute the error on multiple reports if it is on more than one.
- The Fair Credit Reporting Act requires that all credit bureaus follow up on all error disputes. You can keep in contact with the bureaus so you can keep up with the status of your disputes. They may ask you to provide further documentation in the processing of the dispute.
Tips For Improving Your Credit Score
Removing your medical debt that have already been paid or a medical bill that should not be on your credit report in the first place could make a significant improvement in your credit score. But if you are interested in boosting your credit score even further, there are additional actions you can take unrelated to your medical debt altogether.
Additionally, if medical collections have harmed your credit report, there are ways to rebuild your credit history to undo the damage caused by that unpaid medical bill. Here are a few tips and strategies that can make a significant positive difference to your credit scores:
Make Your Payments On Time
Your payment history accounts for 35% of your credit score according to the FICO credit scoring model. Late or missed payments can seriously bring down your score so to improve your credit history, it is necessary to consistently make on-time payments on all credit cards, installment loans, or retail accounts. Don’t allow any credit accounts or utilities to be sent into collections. This also applies to medical bills over $500 sent into collections if they’ve gone unpaid long enough.
If you are a forgetful person who often does not remember when your bills are due, consider setting up an automatic payment for all your credit card payments before the due date. Once you set up autopay, you don’t have to think about it again while being able to rest easy knowing it will be paid on time.
Get Credit For Bills You Already Pay
While you typically never get credit for bill payments like electricity, rent, and gas, there are services now that will report these monthly expenses to the main credit bureaus. These necessary expenses are already bills you need to cover so you might as well get credit for them on your credit report like you would for mortgage payments.
Getting these payments added to your credit report could allow you to build up an impressive credit history far more quickly than you would be able to otherwise. Each bill paid on time will contribute positively to your payment history, boosting your credit score.
Reduce Your Overall Debt
To have optimal credit health, it is wise to keep your credit card balances low to keep your credit utilization ratio within the recommended range. Your credit utilization ratio compares your used credit to the available credit you have in total. Most financial experts recommend a credit utilization rate under 30%.
Keeping your debts under control will not only help your credit but maintain a healthy debt-to-income ratio which will ensure you don’t incur an overwhelming amount of debt that is challenging to get out of.
Stop Applications For New Credit
Applying for new credit too often and too close together, can have a detrimental effect on your credit score if you aren’t careful. Too many hard inquiries can make you appear desperate for credit which will turn lenders and credit card issuers off you. While attempting to raise your credit score, it is a good idea to take a break from applications for credit.
Stop filling out applications for loans, credit cards, and the like for a couple of months or a year or two if you can. Minimizing the changes to your credit report other than rounding out your payment history will make sure that nothing gets in the way of raising your score.
Be Consistent and Patient
It is crucial to remember when attempting to improve your credit score that it is not something that can magically happen over night. To have the longest lasting effect on your credit report, you will want to be incredibly consistent with your efforts and patient for the results you wish to see. The true key to good credit is responsible credit habits and usage for a long period of time.
Don’t give up if you don’t see your credit score jump one hundred points within the first few weeks. Keep up with the changes that you are making and maintain the good habits you are forming in the process. Soon you will see a credit score that reflects your hard work and you will have the financial peace of mind that excellent credit can give you.
As of July 1, your medical debt may no longer hurt your credit score—here’s why | CNBC