How Medical Debt Sickens Your Credit Score

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More Americans are struggling to pay their medical bills, a hardship that could have a detrimental effect on their credit scores. According to the 2010 Commonwealth Fund Biennial Health Insurance Survey, a sobering 29 percent — 53 million people — had trouble paying or were unable to pay their medical bills, up from 23 percent in 2005. Of that 53 million, 30 million were contacted by a collections agency over unpaid medical debt.

Most healthcare facilities (such as hospitals or labs) don’t report to credit bureaus. If you pay on time, there’s no positive record of this to give your credit a boost. But if your medical debt goes into collections, your credit score will take a hit from that action, says Barry Paperno, consumer operations manager for

Even people who don’t have to contend with collections are at risk of having their credit score damaged by healthcare bills. To pay for procedures that would otherwise be prohibitively expensive, many Americans turn to medical credit-card companies. This debt is documented on your credit report as revolving credit, the same as if it were an ordinary credit card. Credit scoring formulas don’t make any distinction between medical versus other types of revolving debt, Paperno says.

(MORE: Should Medical Debt Hurt Your Credit?)

Here’s the rub: “From the few examples of medical credit card accounts I’ve seen on credit reports, the credit limits tend to be set only slightly higher than the initial balances when these accounts are established to charge a specific medical expense,” Paperno said via email. In other words, when you open that account, the credit scoring formula perceives that you’re nearly maxed out. Even if you’d never dream of maxing out a credit card, your medical debt could give that impression. “This can contribute to a higher overall credit utilization percentage, and a lower FICO score,” Paperno says.

So pay attention to the credit limit you’re offered if you plan to use a medical credit card to pay for a procedure. Of course, as you pay down your debt, the utilization ratio will begin to tip in your favor, but be aware that your credit score might be negatively impacted at the outset. Try to keep your utilization on your other revolving credit accounts as low as possible until you’ve brought the medical debt down to 30 percent of your credit limit.