Missed medical debts haunt borrowers for years

These days, there are a large number of financial obligations that consumers may deal with on a regular basis, but between credit cards, mortgages, student loans and more, one that may not get a lot of attention is medical debt. However, these obligations can be just as damaging to a borrower’s credit standing.

Medical debt is a major problem for many Americans, though not for the reasons some might expect, according to a report from the Columbus Dispatch. While some people or their family members may have gotten gravely ill and incurred tens or even hundreds of thousands of dollars in medical debt, many have outstanding balances of just a few hundred dollars or less that can have just as profound an impact on their credit standing.

Why medical debt poses a unique problem

One extremely common practice at many healthcare facilities is sending debts of any kind that go into delinquency to collections agencies rather quickly, often before the patient has even been alerted about its existence, the report said. This is obviously problematic for the borrower because it isn’t always easy for consumers to understand their financial obligations for treatment given insurance or other coverage they may have.

And what could come as a surprise to many is just how common it is for consumers not to know about this issue until it’s too late, the report said. Today, some estimates show that as much as 40 percent of Americans have delinquent medical balances, which have been sold to debt collections agencies, listed on their credit reports. That, in turn, can lower their score significantly, regardless of the size of the bills. Some may be as low as just $20.

Often, consumers who complain about these issues to their state attorneys general say that the reason they have medical debts listed on their credit reports is because of mistakes made by their care providers or insurance companies, the report said. However, relatively few ever make these complaints, with only 220 in Ohio doing so between January 2009 and July 2012. More than half of those said their insurance companies or care facilities were to blame.

Instances on the rise

Another problem with this practice is that it has become far more common in the last several years, potentially leading more consumers to have lower credit ratings, the report said. For instance, the healthcare system advocate organization known as the Commonwealth Fund found that in 2010, as many as 30 million Americans were called by debt collections agencies about outstanding medical bills for which they were responsible, up from 22 million in 2005. That marked a 36 percent increase in just five years.

Similarly, and harkening back to the estimated 40 percent of consumers who have this kind of debt on their credit reports today, the Federal Reserve found that in 2003, half of the 31 percent of all of these documents listing balances in collections were related to medical debt.

The fallout of these issues

What often happens with these outstanding balances sent to collections is that consumers don’t even know they owe them, the report said. Unless they regularly keep close tabs on their credit reports, their medical debts can fall into delinquency and default, and therefore end up having nearly as large an effect on their credit rating as if they defaulted on a credit card or mortgage in some cases.

Fortunately for many of the affected borrowers nationwide, some lawmakers have now heard of the plight their constituents face when dealing with these situations, and action may soon be taken, the report said. There is now a bill in Congress that may provide some relief for those dealing with medical debt.

“The consumers in this country are fighting an unknown entity,” said U.S. Rep. Don Manzullo, an Illinois Republican, at a House Financial Services Committee hearing last month, according to the newspaper. “In time after time after time again, things show up on the credit report and people have no idea it’s on there.”

Because of all these factors, it may therefore be vital for you to order a copy of your credit report periodically after receiving medical treatment. This will help you to identify whether any medical debts have been placed on your file and better understand your obligations. However, taking this step can also allow you to spot any potentially unfair markings that may likewise be having a negative impact on your overall credit standing. Fortunately, working with a credit repair service may help to clear up these issues and return your credit score to where it should be.

Posted in Credit 101
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