Does Medical Debt Affect Your Credit Score?

Medical debt can be expensive—and confusing.

It’s also a common problem for Americans, even those with insurance. Nearly 20% of U.S. households have some form of overdue medical debt. Healthcare bills can add up quickly. On top of that, just having a family member who’s ill or being ill yourself can make it difficult to earn the money to pay medical bills.

In addition to the actual cost of bills, medical debt could drag down your credit score—sometimes and in some states. In recent years, rule changes have tried to make things easier for consumers, with mixed results. 

To protect your access to credit, it helps to know the latest information. You can also take action to ease the burden of medical debt. This could help prevent it from dragging down your credit score, no matter what the next rule change brings. 

Does Medical Debt Affect Your Credit Score?

Yes, medical debt could impact your credit scores if you live in a state that allows it to be reported. Medical debt that winds up on your credit reports could affect your credit score in three ways:

• It adds to the amounts you owe, which is a major factor in calculating credit scores.

• Missed medical debt payments hurt your payment history—the biggest factor in credit scores.

• If you've had medical debt referred for collection, it's considered a serious negative item in your payment history.

Where you live has a big impact on whether your medical debt can be used in your credit scores. Fifteen states limit medical debt reporting (more on that below).

While limited in some areas, millions of Americans still have medical debt on their credit records. That means the impact on credit scores is definitely widespread. If you've had trouble keeping up with payments on that debt, the impact can be especially harmful.

Hotly Contested: Changing Rules on Medical Debt

Adding to the challenge, the rules about medical debt on credit reports keep changing.

Putting medical debt on credit reports is controversial. Consumer advocates argue that medical debt is different from other types of debt. For one thing, it's typically not incurred voluntarily. Medical debt had an overly harsh impact on credit scores, according to the Consumer Financial Protection Bureau (CFPB). 

On the flip side of the argument, medical debt does impair a person's personal finances. Just because the debt stemmed from health needs doesn't change that. Including medical debt on credit reports gives lenders a more complete view of the person's financial obligations.

Credit reporting rules for medical debt have changed in recent years, and it’s not always clear what currently applies. Here’s a look at how medical debt is treated today—and what that means for your credit:

• In 2023, the three major credit reporting agencies agreed to stop including collections accounts for medical debt less than $500. This eliminated two-thirds of the medical collections accounts on credit reports. However, the majority of the dollar amount of medical collection accounts remained.

• Fifteen states have enacted laws that restrict the reporting of medical debt: California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Minnesota, New York, New Jersey, Oregon, Rhode Island, Vermont, Virginia, and Washington State. Some of those laws now face legal challenges, which could affect how long they remain in place. For now, however, the existing rules still apply.

Changes to Reporting May Soften the Blow—Not Erase the Debt

The debate over including medical debt in credit reports is likely to continue. Whatever rules come and go, it won't change the most important fact: Even when it doesn’t show up on your credit report, medical debt is still a financial obligation. Removing this debt from credit reports wouldn’t ease this burden.

You can't control how medical debt shows up on your credit reports, but you can take steps to reduce or eliminate that debt.

How to Get Medical Debt Relief

If you have medical debt, here are some medical debt relief options to consider:

• Get an itemized bill. Go over it with your medical provider to ensure it's accurate. Negotiate a discount on any items you can.

• Ask the healthcare provider about any financial aid programs they have, including forgiveness or payment programs.

• Check local nonprofits or charities that offer help with medical bills.

• Consider refinancing your debt. This may only make sense if you have a low-interest source of credit like a home equity line of credit (HELOC). Even then, you need to be very sure you can afford the payments before putting your home on the line.

• If the debt is on a credit card or loan, negotiate with the creditor for a debt settlement. You can try this yourself or with the help of a professional debt relief firm.

• Bankruptcy could make sense for your situation. Unsecured medical debts could be discharged during Chapter 7 bankruptcy if you qualify. Consult a bankruptcy attorney for your options.

Once you've dealt with the medical debt problem itself, be sure to check your credit reports. Make sure they've been updated to reflect this resolution. 

Government officials have long wrestled with rule-setting for reporting medical debt, and the underlying problem of the high cost of healthcare is still a thorny subject. Knowing your debt relief options could be your best asset in the battle with medical debt.