How an Unpaid Medical Bill Affects Credit

Non-payment of loans or liabilities can negatively affect your credit, and an outstanding medical bill represents a liability. Despite this, it is not a given that failing to pay a medical bill would bring your credit score down precipitously. How an unpaid medical bill affects your credit depends on whether it was reported to the credit bureaus; the size of the debt; and whether there are legal judgments against you arising from non-payment of the bill.

Since the reporting of unpaid bills and other obligations is voluntary, whether it affects your credit depends on if it is reported in the first instance. Some medical institutions might not bother to report it. Others might pass it over to a debt collection agency, which might report it on its own behalf. To be safe, it is best not to have any outstanding obligations to begin with. Still, if there are unpaid bills, the good news is that they are not bound to affect your credit.

Even when the medical bill is reported, it might not necessarily have a significant influence on your credit score. For instance, the credit bureaus do not typically view unpaid medical bills the same way as debt from overspending. In other words, unpaid medical bills have a different weighting. If the bill is large and there are attempts to force you to settle the bill (legal judgments or liens being filed for example), then the unpaid bill could have a more significant negative impact on your credit report and score.

The reality is that medical collection is becoming a more lucrative business than it ever was before. Another change is that medical institutions and practitioners are outsourcing more of their medical collections. MSN Money’s Liz Weston suggested that many more collection agencies use credit reporting as a way to persuade those with outstanding medical bills to pay the debt. Usually, the amounts are small amounts that take a few points off a credit score. This is because a collection agency report is damaging to your credit reputation.

The mitigating factor with reporting of medical collections is that they are considered a general financial obligation. In the current environment, it is undeniable that an unpaid medical bill can affect your credit. The question of “how much” can only be determined by the unique parameters of a particular situation.  Still, if your credit score is excellent, a medical collection report might do relatively more damage than if you had an average score to start with.