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Barb Lanis

Late Medical Bills Can Lower Your Credit Score

Monday, September 17, 2012 - Article by: Barb Lanis - The Federal Savings Bank is a member FDIC and Equal Housing Lender - Message

Even if you're fortunate enough to have health insurance, you can still accumulate some medical bills, which, if left unpaid, can negatively affect your credit report.

Understanding how this can happen will enable you to take steps to help keep your personal finances strong long after you've dealt with an emergency health issue. Missing a payment doesn't only happen if there was an emergency health issue that left you with mounting medical bills. A problem like this could arise even if you simply misplaced a bill or forgot to pay even a small amount.

For instance, if a $200 medical bill is sent to a collection agency, even after you realize the error and pay it, this can still lower your credit scores significantly, impacting your rate in the process and costing you money you likely would have saved in the long run. A growing number of Americans could encounter similar issues when they refinance or take out a loan.

The Commonwealth Fund, a private foundation that sponsors health care research, estimates that 22 million Americans were contacted by collection agencies for unpaid medical bills in 2005. That increased to 30 million Americans in 2010.

Even after the bills have been paid off, the record of the collection action can stay on a credit report for up to seven years, dragging down credit scores and driving up the cost of financing a home. An estimated 3.4 million Americans have paid-off medical debt lingering on their credit reports, according to the Access Project, a research group funded by health care foundations and advocates of tougher laws on medical debt collectors.

Remember that your credit score is like a report card for your credit history. A better credit score means lower interest rates on a loan. So if you neglect to pay medical bills today -- even those smaller bills that don't seem like much when you receive them -- you'll be paying higher interest rates on your loans tomorrow.

Honest mistakes and clerical errors are one thing, but ignoring your medical bills completely will harm you present and future finances. You can avoid some of the headaches that result from medical bill mismanagement by keeping a close eye on your credit and being proactive in credit matters.

As a tip, be an informed patient, and ask your medical provider and your insurance company for copies of all relevant paperwork. Make sure the bills that are supposed to get paid do get paid. Don't ignore paying a medical bill -- no matter how small. It may be tempting to put off paying your bills, but the charges will only find their way back to you. A medical emergency can turn your life upside down, but your financial life and your credit matters don't have to suffer too. Taking the proper steps to keep your credit report healthy if unexpected medical debt does occur is a smart way to protect your entire financial future -- and keep track of your credit history along the way.

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