Medical Bills and Their Impact on Credit Scores

Walking out of a hospital with an expensive bill will not only impact a consumer's bank account, but it can negatively affect their credit score as well. Experts believe that maintaining a stable credit score and being conservative with finances will help consumers deal with their medical bills.

We sat down with one of those experts to discuss medical bills and their impact on credit scores.

Randy Padawer has a Ph.D. in clinical psychology and leads consumer advocacy strategy for Lexington Law. Some of his published works have been included in the Journal of Personality Assessment and the Journal of Consulting and Clinical Psychology.

Q: What are some of the most expensive medical bills you see?

A: Medical bills run the gamut, from $20 co-payments for covered "insta-care" clinics to hundreds of thousands of dollars for very serious treatments.

Q: Do medical bills show up on a credit report?

A: Medical bills do not typically appear on credit reports unless they remain unpaid and are sent to third party debt collectors. Once that occurs, however, the mark generally remains for up to seven years even if the original creditor – a doctor or hospital in this case – or collection agency is repaid.

Q: Do consumers usually use credit to pay for medical bills in full?

A: It's not uncommon for patients to use their revolving balance credit cards to cover insurance co-pays. A few years ago, researchers at Brandeis University reported that consumers with medical bills tended to shoulder about $11,000 in credit card debt on average, compared with about $7,000 for those without medical obligations.

Q: If not in full, can they pay for these expenses in credit or financial payment plans?

A: Few medical providers offer in-house payment plans, although some hospitals will discount certain bills in exchange for full payment. During the last few years, a new form of payment has arisen in the world of financial services termed the "medical credit card." Perhaps the three largest players in this emerging field are CareCredit, AccessOne and MedKey. Basically, these work just like Visa, MasterCard, American Express or Discover. If approved, your medical provider gets a referral fee in addition to their full payment, and the consumer is on the hook for the monthly payments with added interest.

Q: Is paying for bills with credit a bad idea?

A: It depends. For those who manage their credit well, buying only what they can afford and paying down their balances far beyond the minimum payment each month, revolving credit can be a powerful financial tool.

Q: Are there any common ways medical bills are mishandled by either a hospital or patient?

A: A visit to the emergency room may be the only purchasable commodity that requires a consumer to agree in advance to buying a considerable list of unknown complicated products and services from usually more than one seller. While all of this is happening, a patient may reasonably assume that such bills are being worked out with an insurance provider, and that's where trouble so often begins. Even those with good credit may find that one of those complicated bills was unexpectedly referred for collections as a result of one bureaucracy unsuccessfully dealing with another.

Q: Will a mismanaged bill hurt the state of someone's credit or their score?

A: You bet. There is no post-treatment empathy that figures into a consumer credit score.

Q: Do creditors make any exceptions for people who can't pay their bills?

A: Although some creditors may mark an account as "settled" for less than what was originally owed, the credit report will display that notation and will negatively impact the credit score just about as much as a charged-off or collection account. Only accounts marked "included in bankruptcy" will hit the credit score worse.