Medical bills can tarnish credit reports

As the editor of InvestmentNews, I receive a great many interesting e-mails from readers each week.

One in particular, however, from a financial adviser whom I’ll call Kate, attracted my attention.

Kate urged me to write a column about the benefits that everyone can receive from an annual fiscal checkup. She wanted me to encourage the financial advice community to prod clients to get a credit report once a year to keep tabs on their consumer credit scores.

She made this request because she recently decided to check her own credit report and wanted to share her story, believing that it would serve as a lesson to other advisers who may have clients in a similar situation.

Kate was shocked when she received her report, because her credit score was much lower than she had expected.

It seems that about 18 months ago, her insurance company and her medical provider were negotiating payment for some bills that amounted to about $5,000. Because she has insurance, Kate thought that her insurers and medical providers had come to an agreement and resolved the issue.

However, neither the insurance company nor the hospital had followed through. The medical bills became delinquent, then overdue and then were sent to a collection agency.

Kate worked through the problem and eventually got the medical bills paid.

However, she found out the hard way that a medical-collection record can stay on your credit report for up to seven years if you fail to prove that it was an error.

Unpaid medical bills won’t go on your credit report unless they are turned over to a collection agency, which will report the debt as delinquent to one or more of the three major credit bureaus (Experian, TransUnion and Equifax). This could drag down credit scores and drive up the cost of financing a home or taking out a loan.

LITTLE BILLS, BIG PROBLEMS

Medical bills make up the majority of collection actions on credit reports, and most are for less than $250, according to Federal Reserve Board research.

An estimated 3.4 million Americans have paid off medical debt that had smudged 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.

Once a medical collection shows up on your credit report, you can dispute it, explain it or just ignore it.

To dispute the ding, you have to prove that it was erroneous in fact, such as due to a clerical error. If the factual error can be proved, the credit-reporting service will delete the entry.

However, if the problem was the result of nonpayment by your insurer, you have the right to explain it on a consumer statement that the reporting agency will attach to your credit report.

If you dispute the validity of the debt within 30 days of being notified that you owe it, a creditor or debt collector can’t place the amount owed on your credit report without a notation that you dispute owing it.

As for Kate, she eventually disputed the collection record on her credit report and proved that the medical bill was sent to a collection agency unlawfully, meaning that she was never billed directly for the amount due prior to its being sent for collection.

Anyone who finds medical-billing errors on their credit report should send letters explaining the problem directly to the credit-reporting bureaus, she said.

Thereafter, when someone pulls your credit report, they will see your score plus the actual explanation, so it is worth explaining.

“People need to know that the impact medical bills have on a credit score can be huge,” Kate said.

Jim Pavia is the editor of InvestmentNews.

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