This credit score change could benefit you

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Good news for consumers.

Unfortunately, healthcare costs are a major contributor to consumer debt. Even those with health insurance often cannot keep up with the associated costs. Even worse, medical expenses can have a negative impact on your credit score. That is, when medical expenses are not paid.

If you don’t pay your medical bills, your healthcare provider may choose to turn the matter over to a debt collection agency. And at that point, you run the risk of your outstanding debt showing up as overdue on your credit report.

Fortunately, after July 1, 2022, there will be a one-year waiting period for outstanding medical debt to appear on your credit report. This change was introduced primarily to give consumers time to appeal their insurer’s denied claims before the liability appears as delinquency.

Also, as of July 2022, credit bureaus must remove all paid medical debt from consumer credit reports. This is a big deal because typically a collected debt can take up to seven years to be removed from your credit report, even if it’s paid in full.

Still, not being able to pay your medical bills and staying unpaid for long enough can hurt your credit score. It can make it harder to qualify when you want it or want it.

But there are new changes to be aware of regarding medical debt and credit scores.

New rules to help protect consumers

Consumers don’t just have a single credit score. Rather, there are various scoring models that can be used to calculate that number.

FICO is generally the most common, but many lenders also rely on VantageScore. Also, as of the end of January 2023, VantageScore will no longer include any medical debt, paid or unpaid, in the 3.0 and 4.0 score calculations. So if you’re behind on medical bills due to lack of funds or a dispute with your health insurance company, you don’t have to worry about hurting your VantageScore.

positive development

Medical debt is a problem for many consumers. Especially since many people are short of cash these days due to inflation. It’s good that changes are being made to ensure that consumers who are plagued with high medical bills don’t necessarily see their credit score suffer.

At the same time, it’s important to do what you can to avoid medical debt. Because, while the above changes apply to VantageScore, many lenders rely on his FICO as their primary scoring model. One way to avoid medical debt, besides increasing your savings account balance, is to take advantage of tax-advanced accounts that allow you to set aside money for medical expenses. Includes health savings accounts and flexible spending accounts for insurance plans with low deductibles.